In spite of a strong start to the year, March has left most markets badly shaken due mostly to the Coronavirus outbreak. Notable exceptions are safe-haven assets such as gold and US Treasuries, as well as the price of the dollar.
Investors are seeking cues to reenter the market, but analyst responses to the changing state of the global economy have varied widely. As the economic shutdown from COVID-19 continues, the future for markets appears to be anyone’s guess.
Coronavirus Uncertainties Panic Investors
One notable bearish analyst is the chief economic advisor at Allianz, Mohamed El-Erian. He told CNBC’s Squawkbox that markets could continue to new lows due to the uncertainty that remains from the coronavirus fallout.
In particular, El-Erian made clear that this current bear market has been caused by a medical issue rather than a market shift. For that reason, reentry into the market could be extremely dangerous.
His advice for reentry focused largely on one of two possible scenarios, without which he would not suggest investing. He stated: “Either we get a really sharp fall or, alternatively, we get good news on the medical side. That good news is starting to happen, but hasn’t reached critical mass.”
The Bottom Bull Gang
Other analysts, while acknowledging the medical nature of the decline, suggest that the panicked nature of the sell-off indicates a true market bottom for some markets. In particular, Bank of America’s Chief Investment Strategist Michael Hartnett says negativity in the corporate bond and stock markets has ‘peaked.’
His analysis suggests that a powerful buy signal was triggered during the month, as markets dove well below the 200-day moving average. This decline, says Harnett, shows that the market downturn has been too strongly reactionary.
Nevertheless, the strategist does see that markets will continue to face some challenges until the Coronavirus quarantines have ended. Hartnett stated: “Tough for asset prices and volatility to subside until human beings can safely leave their homes; that said … lows on corporate bond and stock prices are in.”
While investors remain under quarantine, seeking to find the next market entry point is a complex affair. Should the COVID-19 death rate continue to increase, fear could continue to drive markets down.
However, should medical news be positive, markets could quickly rebound in a dramatic fashion. In such a scenario, El-Erian made it clear that careful attention must be paid to determine the safest reentry point. He suggests that missing out on the first 5% of the increase is a small loss compared to being wiped out by another decline.
Bitcoin has remained relatively stable over the past two weeks and is already up 13% this month. BTC will experience its third halving in just over a month from now — a factor that could be heavily influencing the price.