Could this be the start of the second COVID-19 share market crash?
The S&P/ASX 200 Index (ASX: XJO) fell 3% yesterday and it's expected to fall another 3% at the open.
This week the Federal Reserve boss Jerome Powell said: "This is going to take a whole lot of time. There are just a lot of people that are unemployed and it seems quite likely there will be a significant group, even after a lot of strong jobs growth, that will still be struggling to find jobs."
If the US economy is going to take longer to recover then it could take longer for the earnings of businesses to recover. Share prices should be a reflection of the earnings outlook.
Who knows where the ASX 200 will finish by the end of today? There are several high profile fund managers in Australia who have moved the cash position of their portfolio to a higher level. One example is Chris Mackay from MFF Capital Investments Ltd (ASX: MFF), its net cash was 46.4% at the end of May 2020 in anticipation of a potential market fall.
The Dow Jones fell by 1,800 points overnight, its worst single-day drop since the March sell off based on second wave fears.
Shares like Afterpay Ltd (ASX: APT), Zip Co Ltd (ASX: Z1P), Webjet Limited (ASX: WEB) and Westpac Banking Corp (ASX: WBC) will be on watch after their recent strong runs.
A second wave of COVID-19 was always a risk to the share market recovery. Countries like Australia, New Zealand, Taiwan and Vietnam have done a good job at controlling the spread of the virus. The north east of the US took the brunt of the initial wave. Now a lot of other US states are seeing rising numbers.
We've already seen that many places in the US can't uniformly follow restriction rules, so this second wave could be harder to control. Although, the first wave didn't really end. The US has just passed 2 million confirmed cases and continues to see thousands more cases each day.
Is this the second COVID-19 share market crash?
It certainly could be. Investors were worried about what a second wave would do to the Australian and US economy. The Organisation for Economic Cooperation and Development (OECD) predicts Australia's economy could shrink 6.3% if there's a second wave of COVID-19. I don't think the market was pricing in the high chance of a second wave. So if you've been saving your cash for another COVID-19 share market crash, this period is probably your chance.
But there's a fair chance that this fall won't be as bad as the first for a few reasons.
First, all of the central bank support is still there. For example, the Reserve Bank of Australia cut the interest rate to just 0.25% . It was seemingly the central banks stepping in that halted the crash in March.
Second, some places like New Zealand, Vietnam, South Korea and Taiwan have done an excellent job of limiting the spread of COVID-19. Some economies can get back to full operation with the virus under control.
Third, people will expect a recovery. The first COVID-19 share market crash was only three months ago. There's a good chance that once the market stops falling it will recover nicely again as people see value in lower prices.
Foolish takeaway
I'm going to be scanning the market today and next week to see if I can find any great opportunities. Be greedy when others are fearful. A 6% fall over 24 hours would certainly suggest that a COVID-19 share market crash may be starting. But it may be quicker and not as bad as the first.
