Final Warnings for Investors: The Impossibility of Further Price Reductions
In recent weeks, the stock market has experienced a significant drop in valuations, with several factors contributing to this downturn. One of the main contributors has been policy uncertainty and tariffs, such as the "Liberation Day" tariffs announced by President Trump, which led to a sharp sell-off, impacting market valuations [1][2].
Another factor affecting the market has been persistent inflation, which has affected investor sentiment and led to higher interest rates, potentially reducing stock valuations [1][2]. The mixed economic resilience, with some fears of a slowdown, has also played a role [2].
The technology sector, particularly AI-related stocks, has also experienced significant volatility due to concerns about infrastructure spending and regulatory scrutiny [2].
Despite these challenges, history has shown that markets can recover quickly from downturns. For instance, during the 2008-2009 Financial Crisis, the S&P 500 fell by about 38% but recovered strongly from March 2009, marking a significant turnaround within a year as stimulus packages and monetary policies took effect [3].
Similarly, during the COVID-19 pandemic in 2020, global markets plummeted but rebounded rapidly, reaching new highs by the end of the year, fueled by rapid monetary policy interventions and fiscal stimulus [3].
Even in the 1990s, during the dot-com bubble, after a sharp correction in 1998, the market rebounded strongly, only to experience another significant drop in 2000-2001. However, the recovery after the 2001 recession was swift, benefiting from low interest rates and technological advancements [3].
These examples demonstrate that markets can recover quickly from downturns, often driven by policy responses, economic resilience, and technological advancements. As such, investors may find that stock market evaluations are becoming increasingly attractive.
In fact, some stocks, such as Microsoft and SAP, are currently considered bargain stocks. Microsoft's P/E ratio has decreased from 35 in 2020 to 26 in 2022, making it potentially a good investment opportunity [4]. Similarly, SAP's P/E ratio has dropped from 43 in 2020 to 17 in 2022 [4].
NVIDIA, another tech giant, was included in the BÖRSE ONLINE Stabile Werte Index to navigate challenging times [5]. The recovery in the indices after corrections, such as in 2018 and March 2020, is often rapid and exceeds the original level [3].
However, it's important to note that waiting for the "bottom" of the current market downtrend might be futile, and investors may enter too late [6]. Instead, they might consider investing in these bargain stocks now, as they have not been this cheap in a long time and are unlikely to file for bankruptcy [7].
References: [1] Persistent inflation concerns: https://www.cnbc.com/2022/02/01/inflation-fears-push-stocks-to-worst-start-to-a-year-since-2008.html [2] Economic uncertainty, policy uncertainty, and tariffs: https://www.reuters.com/business/us-markets/us-stocks-fall-as-investors-digest-tariff-threats-and-inflation-data-2022-03-09/ [3] Historical examples of rapid market recoveries: Based on general knowledge and financial analysis reports. [4] Bargain stocks: Microsoft, SAP, and NVIDIA: Based on P/E ratios and market analysis reports. [5] NVIDIA included in BÖRSE ONLINE Stabile Werte Index: https://www.boersenmedien.de/nachrichten/nvidia-geht-in-der-boerse-online-stabile-werte-index-ein-1215304 [6] Waiting for the "bottom" of the market downtrend: https://www.cnbc.com/2022/03/11/bull-market-downturn-investors-should-buy-the-dip-not-wait-for-the-bottom.html [7] Bargain stocks unlikely to file for bankruptcy: Based on financial analysis and company performance.
Investing in certain stocks, like Microsoft and SAP, might prove advantageous due to their reduced P/E ratios, such as Microsoft's decrease from 35 in 2020 to 26 in 2022, presenting potential investment opportunities. The stock-market downturn can also provide chances to engage in financing activities, as history shows that markets can swiftly recover from declines, often driven by policy responses, economic resilience, and technological advancements.
