The S&P/ASX 200 Index (ASX: XJO) may be getting a bit too far ahead of itself at the moment. Or is it?
It has recovered 22% since that market low on 23 March 2020. The ASX 200 is still down 22% from the all-time high on 20 February 2020. What's going to happen next?
Bear case for the ASX 200
Several major economies are predicting that this is going to be one of the most economically painful periods. Perhaps it will be the most painful ever. I'm not sure either way about that, but to me it seems unlikely that the ASX 200's low would be in a month after the sell-off started if the real economy does get that bad. Maybe investors are getting complacent about the situation.
There's a large amount of economic support for populations at the moment. Unemployment benefits have been boosted and Australia's jobkeeper program is unprecedented. But how long will these last? The Australian federal government seems keen to lower the cost somehow. If these programs are ended prematurely it could cause shares to fall.
The GFC is a completely different situation to this, but the ASX 200 market selloff and economic damage took more than a few months to get through.
Bull case
There is already early signs of positive news of a vaccine for the coronavirus. There are dozens of teams around the world trying to develop a treatment or vaccine.
Central bank support and extremely low interest rates are supporting asset prices like the ASX 200. Perhaps that support is artificial, but it's there nonetheless. The RBA has already said that low interest rates are probably going to stay around for at least for a few years.
A fall of more than 20% is a sizeable drop even after the recovery we've seen. These prices are still (long-term) good value compared to before and interest rates are a lot lower. Time will tell whether the bull or bear case is right. I think there could be more pain to come, but I'm still regularly investing each month.
Within the ASX 200 I still there are plenty of opportunities like Brickworks Limited (ASX: BKW).
