3 reasons why I think the stock market will recover after this pandemic

Buying undervalued shares now could lead to long-term gains due to the recovery potential of the stock market.

bull and bear standing on bar chart, asx 200 bull market crash

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The stock market has a long track record of recovery. Therefore, even though the coronavirus pandemic could cause further challenges for a large number of businesses, the long-term prospects for equity investors could be very positive.

With the world economy also having an encouraging track record of returning to positive growth after recessions, and major economies enacting stimulus packages, the turnaround potential for shares appears to be high.

As such, now could be the right time to buy a diverse range of shares in order to benefit from a recovery after the pandemic.

Stock market track record

It’s easy to look back on previous stock market downturns and fail to appreciate the mood among investors when they were in full swing. For example, a glance at the long-term performance of major indices such as the S&P 500 makes the tech bubble seem like a blip on its path to growth. However, at the time, there were major concerns among investors regarding the outlook for the economy. This caused many stocks to collapse in value, which left many investors with serious losses.

However, equities went on to recover from the tech bubble, and from other declines such as the financial crisis, to post strong returns. Therefore, even though investor sentiment is relatively weak at the present time, and further challenges could yet be ahead in the short run, the prospect of a recovery for stock prices seems to be high. Its track record is very solid, with investors who buy while risks are high having often been among the major beneficiaries during a subsequent recovery.

Economic improvements

Any stock market recovery is often predicated on the prospect of an economic recovery. On this front, the prospects for long-term investors are relatively bright. The world economy may face threats such as geopolitical risks in Europe, and a continued rise in coronavirus cases, but it has always been able to return to positive growth following its recessions.

Certainly, the current recession could be greater than has been experienced for many years. However, confidence among consumers and businesses is likely to recover over time. For long-term investors, this could mean that now is an attractive opportunity to buy shares.

Stimulus packages

The stock market rebound has been aided greatly by fiscal and monetary policy stimulus packages introduced in a variety of major economies. Furthermore, policymakers have made it clear that further stimulus is available should it be required.

This could significantly aid the recovery in equity prices over the coming years from the present pandemic. It may help to provide liquidity to a wide range of businesses, which could help them to survive the short run. It may also encourage asset price growth over the long run, which took place following the financial crisis. This could aid the performance of stock prices, and help you to improve your financial position over the coming years.

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Motley Fool contributor Peter Stephens has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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.

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