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Will we see an ASX bull market in 2020?

It’s hard to see how we could be contemplating an ASX bull market right now.

The S&P/ASX 200 Index (ASX: XJO) has slumped 21.42% lower in 2020 and officially entered bear market territory.

A bear market occurs when there is a 20% downturn or more in stock prices over at least a 2-month timeframe. That means that a number of ASX shares have been hammered from February onwards.

It hasn’t just been growth shares like Xero Limited (ASX: XRO) that have been hit hard, with blue-chip dividend shares including Commonwealth Bank of Australia (ASX: CBA) also slumping lower.

But it hasn’t all been bad news for the ASX 200 of late. There have been many days of huge gains scattered amongst this bear market. So many, in fact, that we could be looking at an ASX bull market in 2020.

So, what’s the outlook like from here and where should you look to buy?

Why we could see an ASX bull market in 2020

Now, I don’t personally think we’re out of the woods yet. This market crash has only just kicked in and we haven’t seen bear markets reverse this quickly throughout history.

It can pay to learn lessons from past bear markets. In the GFC, the S&P/ASX 200 Index gained 14% between March and May 2008 before falling a further 50% to the market bottom in March 2009.

While Australia has done well to flatten the coronavirus curve, relief is still a long way ahead. Given what we’re seeing unfold in the United States, it’s hard to see us hitting an ASX bull market in 2020. However, stranger things have happened.

The Federal Government has earmarked billions of dollars in stimulus measures for the economy. That could keep the economy ticking over long enough for things to adjust to normal.

It may be a long shot, but there are signs that investors are willing to invest their cash. Strong demand means higher prices and that could put us in ASX bull market territory.

How should you invest?

I think it’s wise to invest in companies that are set to do well in the future. This could be the ASX banks like Commonwealth Bank, provided you’re willing to forgo a tasty dividend for one year. 

If restrictions are lifted sooner rather than later, some of the hardest-hit Aussie companies may roar back to life in 2020. That could trigger an ASX bull market and help build your wealth for the future.

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Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Xero. 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.