Question

In: Finance

Given the current environment, do you think it’s a good idea for someone hoping to profit...

Given the current environment, do you think it’s a good idea for someone hoping to profit in
one year to put money into the U.S. stock market now? Why or why not? Please choose a
side and justify your arguments.

Solutions

Expert Solution

In the current envronment ,U.S equity markets have fallen from All time high to 52 weeks lows within a span of one month amid concerens due to lockdown arising out of coronavirus. Investors are skeptical about a long term bear market and an impending recession due to prolonged lockdown.

I think that it is a good time to invest a large chunk of money into the U.S equity markets as equities are selling relatively very low to their historic mean average .This is a time when there is complete chaos on the wall street and the equities are getting sold off at any price because of margin calls are getting triggered and excessive volatility in the derivatives market.

The prices are reflecting the deep cuts and there is complete blood on the streets and one has to remember that this is not a global economic recession but this is a health crisis which is triggering a widespread panic in the equity markets and once the rates of people getting affected by this pandemic slows down and any vaccine starts to function effectively, There will be a very swift recovery in the stock prices as the fall has been drastic.

This is just a temporary economic halt and a rational investor should buy stocks based upon the relative valuation which has gotten cheaper and the stock prices have even fallen below the intrinsic prices . The high growth and low debt stocks which are trading at relatively lesser valuations should be bought into and kept for atleast an year in order to make handsome rate of returns.


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