Most experts agree that kickstarting the global economy after the current lockdown due to coronavirus pandemic could be crucial for future progress. There are more factors, including a deep unemployment, which can cause problems and affect the global economy and markets.
How are stock markets managing right now? In the middle of April, American stocks appeared in the highest values since March 2020. A symbol of the growth had been some good news on potential Covid-19 drug being developed by Gilead Sciences, an American biopharmaceutical company. A recently leaked WHO study on Gilead’s Covid-19 drug inefficiency, however, signals that markets haven’t won yet. Right after the news spread, shares of the American biopharmaceutical company plunged, and so did all global stock market indexes as well as European indexes.
Some countries have begun to ease lockdown measures and reopened their economies, which suggests that a stock-market bottom had been reached. Yet, according to Alpho broker, it could also mean the so-called “lull before the storm”. Why? Let’s have a look at it in more detail.
Due to the pandemic, expenses per individuals grow – the employment rate drops and the impact of lockdown on the economy of each state is inevitable.
In the latest report published on 6th April 2020, the International Monetary Fund lowered its global growth estimate for 2020 to 3%, and such a scenario would be worse than the financial crisis of 2008 and 2009. Moreover, it could trigger further sales of stock markets.
While developed economies are expected to slump in 6,1%, developing markets and economies should drop by 1%.
In addition, a wave of stock market growth after a slump in March could have been just a temporary movement in a bearish mood. Mark Jolley, the strategist from CCB International Securities, told CNBC that shares value could drop by 15% below the last minimum. For example, main stock indexes are currently traded on a higher forward P/E, while profits of companies decline. The forward P/E formula means a ratio between the current price and estimated earnings per share in the upcoming 12 months.
That could be a serious reason for the nervousness of investors, whose decisions during negative sentiment usually lead to sales.
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