6,000 to 10,000 Level – S&P/ASX 200 index and Key Market Swings of last three months

Summary

• S&P/ASX 200, the benchmark index ended its seven-day rally in the past week and lost significant gains in just two harsh sessions to end last Friday on a declining note.
• The market was expected to pick up on Monday in line with the gains on Wall Street on Friday, which it finally did on Tuesday 16 June, as reflected through S&P/ASX 200 settling the day, with an increase of 3.89%.
• Back to back events in recent times have reflected the disruption in the economy and have impacted the swinging investors’ confidence.
• The situation around COVID-19 remains highly uncertain, as the US still tops the chart of countries, with greatest number of people infected by virus.

The S&P/ASX 200 crossed the 6000 points mark last week, on 09 June 2020 when the index climbed by 2.44 per cent to 6144.9 points and continued its seven-day streak to rise up to 6148.4 points on Wednesday, last week. The market reflected an optimistic trend amid the highly uncertain environment due to the prolonged ongoing virus crisis.

Back to Back Uncertain Events Demotivating Investors

Last week’s optimism in the market brought hope for international investors for a prolonged rally in the market.

However, the optimism in the market could not last for another day, and the market shed by 3.05% and tumbled down to 5960.6 points on 11 June 2020, following the announcement from the US Federal Reserve Chairman Jerome Powell regarding the situation of recession brought forward as a result of pandemic.

Moreover, speculations started surfacing in the market regarding the positive start to the Australian stock market after heavy falls in the week before. The Australian market was expected to take a positive effect from the rebound on Wall Street on last Friday.

The Australian benchmark index failed to make any gain on 15 June 2020 and dipped by 2.19% to a further lower mark of 5,719.8. However, on 16 June 2020, the same index settled at 5942.3 points, up by 3.89% from its last close. Also, last week, the market lost over a week’s gain in just two harsh sessions defying all the optimism surrounding reopening of economy, that was expected to pick up the market beyond normal values.

The COVID-19 crisis still has a tight grip over the US, as well as other countries and the markets appear to continue with their struggle for a little longer time to gain immunity from the effects of the virus-related worries.

World Economy Undergoing Recession

Moreover, as the world economy undergoes a severe recession phase, the market has tough times ahead to make significant upside for investors. This, coupled with the fear of second wave of infections across multiple countries, is adding to the worries of investors and compressing their shaky optimism.

It was in February when investors were enjoying best session on the ASX, and the market was rising high beyond 7000 points. However, it only took a month’s time for the market to collapse and hit as low as 4546.035 points on 23 March 2020.

Stimulus Package and Lowered Interest Rates Helped Gain Some Confidence

The Morrison Government announced clinical, as well as social restrictions across several states during the month of March. Moreover, the trend in the market since then has been suggesting loose optimism of the investors.

Three months ago, the government announced various schemes and an economic stimulus package with enough zeroes intended to keep Australian businesses running and its people employed. However, the billion-dollar stimulus could not hold up the optimism of the investors for a long time, and their sentiments were taken over by the worsening situation of COVID-19.

In addition to this, interest rates were also lowered by the Australian central bank, and subsequent announcements regarding policy and monetary measures kept creating a push for the investor confidence from time to time.

However, investor sentiments remained on a loose end among all this and was left to catch up to the pre-COVID-19 levels.

Headwinds from coronavirus Disruptions in the US

The disruptions caused by the COVID-19 are weighing heavy on the world economies, and these are clearly reflected in stock markets across the globe. The superpower economy, like the US, is struggling to control the situation and has been through an appalling period. The country still ranks at top among countries, with the greatest number of COVID-19 cases.

The recent seven-day rally on ASX was propelled by the unexpected biggest job increase ever, in May 2020 by the US. The US economy was beginning to recover from pandemic, where the employment stunningly grew by 2.5 million in the month, and the unemployment rate declined by 13.3%. This data presented by the US Labor Department was much better compared to the expectations of the market analysts, as well as investors across the globe in such alarming times when people have been losing jobs at a rate like never before.

Moreover, as per fresh report in June, nearly one and half million people filed for jobless claims last week in the US, taking the total number of jobless claims filed to 44 million. Recently, the news surfaced that the US jobs data for the month of May showing a drastic increase in the employment was not error-free.

The US stock market saw a significant boost in the investor confidence as such drastic increase was least expected in current times of crisis. Also, the positive jobs data appearing out of the blue had global investors’ sentiments up and high.

Moreover, experts anticipated the market to pick up from seven-day rally and gradually move higher, leaving behind the COVID-19 worries as the situation looked like under control. However, S&P/ASX 200 index is back to below 6000 points mark and the expectations to reach near 10,000 points and beyond seems to be on hold.

Bottomline

To prevent further fall in the market and make a prudent projection for it to uplift, the highly uncertain situation surrounding COVID-19 needs to be under control. Moreover, the market is expected to significantly gain as we see further improvement in the overall health, as well as the economic situation with the decline in COVID-19 cases and reopening of the economy to normal level in the coming times.