- Most G20 countries saw an economic downturn of 30% as a result of the global closedown and widespread panic.
- Despite seeing stock markets around the world slowly rising over the past few weeks, the likelihood of another crash soon is not impossible.
- The absence of a vaccine, businesses and consumers start to default on loans, and unemployment on the rise, could contribute to the next stock market crash.
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The recent stock market crash of March 2020 took a huge toll on global economies. Most G20 countries saw an economic downturn of 30% as a result of the global closedown and widespread panic caused by the coronavirus pandemic.
Although we are seeing stock markets around the world slowly rising over the past few weeks, the likelihood of another crash soon is not impossible as economies around the world start to reopen despite the absence of a vaccine, businesses and consumers start to default on loans, and unemployment on the rise due to the health crisis.
Here are six reasons why another stock market crash is just around the corner:
The Second Wave
As businesses all over the world start to reopen despite the absence of a vaccine, it’s not unlikely that the world will see a second wave of new COVID-19 cases. If this happens, new and even longer rounds of shutdowns and quarantines can be expected. This could result in another economic panic that could trigger another stock market crash.
Due to the health crisis, many small businesses were forced to temporarily and permanently close their shops. Because of this, many of these SMEs are struggling to stay afloat—forcing them to reduce expenses by cutting down their staff. This contributes to the rise of unemployment that slows down the economy.
It’s unrealistic for us to think that when this health crisis is over, things will suddenly go back to normal. Even if a vaccine is successfully created, businesses that were gravely affected by the pandemic will take a lot of time to recover. This means that unemployment could continue to rise which will result in a prolonged economic downturn.
When an economy is in crisis, consumers and businesses tend to rely on debt to supplement their lost income. Despite the efforts of governments around the world to regulate the lending industry and order lenders to extend loan payments, no lending institution can sustain operations if they will continue to delay generating income. The obvious result of loan defaults is the bankruptcy of banks and other lending institutions which means people working in this industry will find themselves out of work—slowing down the economy as a result.
Fear & Uncertainty
Although we often overlook the influence of emotions like panic and fear in the economy, its impact is something we won’t be able to deny. As more people succumb to fear due to the uncertainty of the economy, many people find themselves either panicking or under the influence of inaction and indecision. This influences our decision-making capabilities when it comes to investing, our businesses, careers, and overall way of living.
The current health crisis the world is experiencing today highlighted the inconsistencies and incompetence of governments, news outlets, and health organizations around the world. These inconsistencies and incompetence add more to the problem instead of being the source of leadership, courage, effective and efficient action, law and order, and accurate information. With consistent misinformation, manipulation or misinterpretation of data, and ineffective health and government policies, many people suffer from confusion, indecision, disobedience, and inaction. These have a negative economic impact that could influence a crash in the markets around the world.
What happens around us affects the stock market’s performance and economy in general. Although crashes are a constant part of investment management and even a good source of value for some seasoned investors, most people who invest in equities are not fully equipped with skills, knowledge, experience, and financial power to navigate a down market. It is important to look for signs that could give us a hint of a potential crash that could happen anytime so we can prepare for the worse as investors.