In March, You Could Buy Cheap Stocks
Is it a good idea to buy stocks in 2020, and can you buy cheap stocks? Investors are thinking about these issues after this year’s severe stock price falls. You can read a lot of times that stock indexes were down 30-45 percent on the March 23 low. But the devil is in the detail. In such cases, always ask, compared to what values did it fall?
How are stock prices compared nowadays? Usually with the February peak. Remember what were the main topics at the beginning of the year. Political tensions between the US and Iran. Is World War III coming? Prolonged American trade war with China and the EU. A record was set for main stock market indices in the second half of February. But all these questions don’t matter now.
Bad and Even Worse News Is Coming
The coronavirus and the huge economic crisis, probably not seen 80-90 years ago, pushed everything else into the background. No one knows if we need to prepare for some months, or various years of suffering. And for now, central banks and states seem to pour money into the market in vain. Thousand of billions (=trillions) of dollars. The economy is shrinking. We don’t even know exactly how much. One after another, data is coming worse than expected. Uncertainty is enormous, which usually does no good to the stock markets.
What do stock exchanges do in the meantime? The S&P 500 index last night, 2,863 points, is only 2.7 percent lower than a year earlier. And the S&P 500 Total Return (SPXTR) index, which also includes the effect of dividend payments, fell 0.2 percent during that time. That means, nothing. Now what? Has nothing happened in the last 12 months? Do we live in the same happy times of peace as we did then? Haven’t at least a quarter of a million people died? Haven’t collapsed entire industries like tourism, aviation? Shrank a large part of production and oil prices? Did investors have spent the last few months under a flat stone?
Are Stocks Cheap Now, or Were They Expensive?
Comparing to the February peak, I do not think is the right method. It was probably too high a value. Markets are hectic, at no point can we say it shows a realistic valuation. So, in the table, I calculated how much each stock index fell compared to their average last year. Not much. The Nasdaq Composite Total Return Index even rose ten percent from its 2019 average.
You can still do a lot of different calculations, comparisons. For example, many consider moving averages as a key element. Consider this post an opinion based on many years of capital market experience. But, of course, this can also be wrong. Now, no one knows what the future holds. (Many gurus and geniuses also admit this.)
Big questions in 2020
Opinions are almost always divided on whether you can buy cheap stocks at a certain moment or not. Today, the same. Should I buy stocks in 2020, or is it too late, because the lows have already been reached? Are we approaching another low point where we will see much cheaper stocks? Or are we facing years of stagnation at a lower level?
The bulls’ (who believe in rising prices) main argument now is that rescue packages of unprecedented size have arrived. Governments and central banks in the US have launched an economic stimulus that goes beyond the multi-year period of the 2008-2009 crisis. Huge rescue packages have been put together in many other countries as well. Others say that is not enough, we need to prepare for lower economic activity in the long run. Still, many others say it all depends on when there will be a vaccine or an effective drug for the new coronavirus. But one thing seems certain to me: stocks are not cheap now.