It looks on the surface as if the stock market crash is over. After falling by more than 30% in March, the FTSE All-Share has surged in value over the past week. The index is now up around 20% from its low.
Investors have been rushing to buy back into the market over the past seven days. There have been positive signs in Europe that the coronavirus outbreak is under control, and this has helped improve investor sentiment.
However, some analysts believe the stock market crash is only getting started. The City thinks that as the economic effects of the outbreak begin to emerge, the market will fall further.
The question is, who’s right? Is the stock market crash only just beginning, or is now the time to make the most of this once-in-a-decade opportunity?
Predicting the stock market crash
It’s almost impossible to predict the direction of the stock market over the long term. Many analysts have tried, but most have consistently failed. As such, it might be sensible to take any market predictions with a pinch of salt this time around as well.
The stock market crash might have further to go, but there’s also a good chance equities will stabilise over the next few weeks. We don’t know at this stage. Therefore, the best action investors can take is to concentrate on buying high-quality stocks and don’t try to time the market.
Buying quality
Buying quality stocks won’t make your portfolio immune from further market declines. But by focusing on quality, you should be able to avoid the worst of the stock market crash while, at the same time, being well-positioned for a market recovery.
Research has shown that over the past 120 years, the UK stock market has produced an after-inflation return of around 5% per annum for investors. Analysis also shows investors who miss the best two or three trading days, achieve a significantly worse performance over the long run.
Unfortunately, it’s almost impossible to predict with any accuracy the days on which the market will achieve its best performance. So, staying the course is the only way to benefit from the good days. This means investors have to weather the bad times as well.
Still, by sticking with high-quality stocks, and taking a long-term outlook, it’s easy to look past near-term market volatility.
Investing is a marathon, not a sprint. It’s important to remember that when you’re organising your portfolio for the future.
The bottom line
So overall, right now it’s not possible to tell if the stock market crash is over. However, stick with high-quality businesses and take a long-term perspective. By doing so, investors should see a positive return on their investments over the long run. No matter what the market does over the next few weeks and months.
