3 Reasons Why Now May Not Be the Right Time to Buy Stocks

3 Reasons Why Now May Not Be the Right Time to Buy Stocks

If I had to choose one word to define 2020 so far it would be: volatile.

The spread of COVID-19 and the response to it has plunged the world into uncertainty. Sending stock markets plunging in March, but then rallying in April.

Even overnight we saw a disconnect between Europe’s and the US’ outlooks. While the former tanked on a grim outlook, US markets rose despite an ever-rising death toll.

As an investor, it certainly makes for strange times. And trying to decide whether to buy or not right now is a tough call to make.

Here at The Daily Reckoning Australia, we believe it is best to be cautious with your money. Which is why we think steering clear of the stock market right now may be a smart move.

Why? Well, here are just three of the latest reasons to be wary about equities:

  1. The trade war is back

After a brief ceasefire, the US and China are once again back at each other’s throats.

The trade war that haunted markets throughout 2018 and 2019 is back. President Trump is once again tabling a fresh round of tariffs ready to strike Chinese imports. And you better believe China will be just as ready to answer back.

It certainly won’t surprise anyone that the two superpowers are bickering once more. But the timing couldn’t be worse for markets.

Many companies still don’t know just how big the cost of COVID-19 will come to be. Piling on fresh taxes on top of that will only make things harder.

And even if Trump doesn’t follow through on his threat, the mere possibility is enough.

It is the unpredictability of this trade stoush that should give investors reason for pause.

  1. Demand for oil has gone up in flames, and it may not ever fully recover

The price of oil may not be at the dire lows we saw in April, but it certainly isn’t in a good spot.

Some demand is slowly creeping back into the market. A sign that we may have hit the bottom for now.

However, even if the worst is over, the outlook for oil isn’t pretty. Insiders are already bracing for a very different market. One that may never recapture the ravenous demand that was once common.

Shell’s CFO Jessica Uhl, one of the most important people in the industry, has already set the tone. As she states:

We are looking at a major demand destruction that we don’t even know will come back,

So the oil price may come back, but if the volumes are signifcantly lower, we still have a major dislocation.

In other words, the post-COVID-19 energy markets may be a very different beast. One that doesn’t rely as heavily on oil as it did prior to this pandemic.

For the stock market, that is yet another unknown that could lead to major risks.

  1. Debt, debt, and more debt

Overnight the US government broke a new record. They are now set to borrow US$3 trillion to cover their recent stimulus spending.

Easily doubling the US$1.28 trillion they borrowed over the course of 2019.

Plus, this record-breaking sum is just for the current (second) quarter. Meaning more debt will almost certainly be added over the course of the year.

And all up it brings the US’ total government debt to US$25 trillion.

It boggles the mind to even think about it.

The US certainly isn’t alone though.

Locally, our own government has thrown any hopes of a surplus out the window. Instead, they are now on track to deliver a budget deficit of $155 billion.

Now, in the short-term this debt is obviously a positive for the economy. It gets people spending and should help soften the downturn. Few would argue against that.

However, the sheer size of these packages and the fact that they’re still getting bigger paints a worrying picture. Not just for our long-term ability to pay this debt back, but also just how deep the current recession may be.

All this borrowing should serve as a big red flag to wary investors. One that may suggest things aren’t nearly as rosy as everyone hopes.

What happens next

Now, I realise this paints a very pessimistic outlook for stocks. There is every chance that markets may fare far better than I’ve made it seem.

I wouldn’t count on it though.

As I stated at the beginning, 2020 has been defined by its volatility. And it looks as though it will stay that way for the foreseeable future.

That’s why you need to be aware of the risks out there. Risks that can and will have a material impact on your wealth if you’re not careful.

Because of this, Shae Russell, editor of The Daily Reckoning Australia, has put forward her road map. An outline that explains exactly where we are, and what may be yet to come for this crisis.

I won’t lie to you, it isn’t exactly a cheerful read — but it is an important one. So before you decide to make any move in the markets, please read this report. You can get your free copy, right here.

Regards,

Ryan Clarkson-Ledward,
For The Daily Reckoning Australia