It's obvious we're still in the throes of one of the nastiest bear markets investors have seen since the GFC over ten years ago. Since just last month, the S&P/ASX 200 Index (ASX: XJO) has lost almost 30% of its value.
Almost a third!
It's a big deal.
Now, just as I was worried about a potential market crash coming in January (not that I predicted this would happen at all), I'm now hedging my bets that we may see a turnaround coming up.
Now, I repeat, I have no idea what the market will actually do tomorrow, next week, next month or next year. I could very well be completely wrong here.
But I do see the potential for a reverse in fortunes.
Why the stock market could turn around
It's because the US Federal Reserve is pumping unprecedented amounts of liquidity into the US share market. Our own Reserve Bank of Australia has also slashed interest rates to new record lows and may even be preparing to enter into Quantitative Easing programs.
In this environment, investors simply have nowhere else to turn to.
Well, that's not quite true.
There's always gold. But that is unpalatable for many investors.
And let's not forget about the 'safety' of government bonds.
But considering a 10-year Australian Government bond is now offering a yield of 1% and the US Government 10-year T-Note is offering 0.77%, I don't think there's really an alternative there. You may as well have your cash under the bed!
Many investors would have simply 'gone to cash' and that's not a good place to stay long-term either. And that cash is liquid and ready to go.
No, my guesswork here has nothing to do with the coronavirus situation. It remains very serious and I don't think we're out of the woods yet there. But the stock market is a forward-looking mechanism and it's very possible that it will race ahead of the game, even as the economic damage from the virus is still being felt.
I personally think selling your shares and 'waiting for the bottom to buy back in' is a high-risk strategy and one that is likely to lead to wealth destruction. Just today, the ASX 200 has rallied 3.35% (at the time of writing). Anyone who's 'waiting for the bottom' has just missed out on those gains.
Foolish takeaway
So, if you're one of those investors I'm disagreeing with here, I think you should be prepared for a market where the chances of a bottom are equal to the chances of further falls. Trying to predict the market is a fool's game (not the good kind of Fool), and so I think we all should be ready for anything right now!
