When Will the Stock Market Recover?

This is the most important question on the minds of investors these days.

Most investors were not prepared for the kind of crash we've seen in the markets recently. They have suffered heavy losses and are now hoping for better times ahead.

While their hopes and fears are understandable, these emotions come in the way of successful investing.

So most investors are left between a rock and a hard place when it comes to investing in the market today. They can either bite the bullet and start buying stocks now. Or they can wait it out and hope for lower prices in the future.

Either way, they won't be confident unless they have the answer to the all-important question - When will the stock market recover?

Finding the Answer

Now, it's very easy to say no one can predict the future and thus the question is unanswerable. But that would be lazy.

It makes sense to put some effort find the answer. If you get it right, you could time your stock purchases correctly.

So with the knowledge that finding the answer will be very difficult, let's try anyway.

The first step to find out when the stock market will recover is to understand the reasons why it fell in the first place.

We've got you covered there. For details, read this editorial - Why the Indian Stock Market is Falling.

In a nut shell the market is falling due to the following reasons...

• The disruptions caused by the Russia-Ukraine war
• Rising geopolitical tensions around the world
• High inflation which will last for a while
• High commodity prices
• Rising interest rates
• Global supply chain problems which are also not going away soon
• Omicron and it's sub-variants causing covid flare ups, especially in China
• The slowdown in China made worse by the government's 'zero covid' strategy
• Heavy selling by FIIs
• Worries about a recession in the US and it's spillover effects
• Uncertainty about the world's economic future
• The general realisation that stocks had gone up too much and are overvalued

The Most Important Reason

Now those are a lot of reasons. But the most important reason is the understanding that the easy money era in the financial world has come to an end.

This era started back in the early 1980s, when the last great interest rate cycle peaked in the US.

The general trend since then has been falling interest rates, relaxed monetary policy, deregulation of the economy, more globalisation and trade, and a bigger role of the financial sector in the economy.

This easy money era has been dominant in western nations for the last forty years and to an extent in developing countries too.

But these trends have either changed or are slowing down.

We now live in a world where the financial system will get tighter and economic growth will be harder to come by.

Thus, finding stocks for the long term will not be easy.

Timing the Market Recovery

Now that we have understood the reasons for the market crash, what can we say about a market recover?

Well the question answers itself! The markets will recover when the reasons for the fall mentioned above, have played out.

In other words, the markets will recover when these reasons no longer seem scary to the bulls.

Note here that it's not necessary for the market to get a huge boost with some positive news. That will help of course. The end of the Russia-Ukraine war, for example.

But it's not necessary.

The stock market is famous for defying people's expectations. It can go up in the absence of good news as long as there is no more bad news coming its way.

This might seem surprising but it's perfectly normal market behaviour.

And therein lies the answer to the question.

The most likely time the market will recover, will be when it no longer considers the reasons mentioned above, serious enough to take it down any further.

When will that be?

It's impossible to say. Each of the reasons has a different level of seriousness attached to it.

The slowdown in China is important but the market won't lose sleep over it. But a US recession will certainly kept many investors and traders up at night. In fact, that's already the case.

The market will need to see the light of day on these problems. Then and only then will a sufficient number of investors come off the fence and commit large amounts of money.

Does this mean you should wait and not buy stocks now?

Not at all. You can indeed buy stocks now. You can buy stocks now. Just make sure that you're buying high-quality stocks only. And you should do so in a staggered manner.

These will be the stocks that recover first when the tide turns. You can start building positions in fundamentally strong stocks in preparation.

In Conclusion

You must understand and accept the fact that in the stock market, making predictions is a losers game but being prepared is a winners game.

The time to prepare for the net bull market is now.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...