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Why next month may be the right time to buy the bear market

Could a sense of FOMO be emerging as the S&P/ASX 200 Index (Index:^AXJO) (ASX:XJO) jumps for a second consecutive day?

The fear of missing out was unthinkable only a few days ago but there is now an increasing focus on the potential turning point of this COVID-19 induced bear market.

While I believe it’s too early to call a bottom for the market, there are signs that a sustainable turnaround could come as early as next month!

Watching the curve

There are a number of big “ifs” though. My assumption is that cashed-up bulls (and there are many on the sidelines) are waiting to see signs that governments are getting on top of the coronavirus pandemic.

This means the flattening of the often referred to corona-curve, which measures the growth rate of infections.

The key problem with the on-going shutdown of the global economy is that no one knows how long the harsh restrictions imposed by governments will last.

Signs of a sustainable recovery

This forced a range of ASX companies to withdraw their earnings guidance. This includes the likes of Qantas Airways Limited (ASX: QAN), Cochlear Limited (ASX: COH) and Mirvac Group (ASX: MGR) – just to name a few.

But what we can safely assume is that life cannot return to something that resembles normality until the rate of infection reverses. This is what China’s Wuhan experience has taught us.

This is why looking at Australia’s COVID-19 curve projection is important. The latest government figures put the total number of coronavirus cases at 2,423 and JP Morgan took a stab at predicting when the curve will peak.

Why mid-April could be key

The broker compared the Australian experience with that of other countries and took a detailed look at the federal and state government’s containment measures to stem the infection.

It also looked at the possible efficacy of the various mitigation measures undertaken and compare how Australia is placed versus peers.

“Modelling based on our Asia Insurance analyst MW Kim’s expertise with his SIR (Susceptible, Infected and Recovered) methodology, including his expertise in fitting curves to Asian data sets, has been used to arrive at estimates for the possible peak in new claims in Australia,” said the broker.

JP Morgan believes that the peak will happen around 15 April but warned that there the situation is so fluid that the results can change on a dime.

The longest three weeks

However, other experts interviewed in the media have indicated a similar type projection. The benefits from the recent clampdown in Australia won’t be seen for about three weeks. Assuming these containment measures work, we should see the curve reach a peak by around mid-April.

Declaring victory over the pandemic will take much longer – possibly six months if medical experts are to be believed. It will be too late to buy bargains if you waited that long.

As I mentioned, the bulls are more likely to come charging back when the curve starts to flatten. Fingers crossed we don’t get a second outbreak.

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Brendon Lau has no position in any of the stocks mentioned. Connect with him on Twitter @brenlau.

The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Cochlear Ltd. The Motley Fool Australia has recommended Cochlear Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.