Can US Stock Markets Rise in Q2 after Q1 Crash?

• US stock markets fell sharply in the first quarter. The Dow Jones Index had its worst first quarter ever, while the S&P 500 had its worst quarter since the 2008 financial crisis.
• After the first-quarter crash, will financial markets rebound in the second quarter? Should investors brace for more pain?

So far, 2020 has been a reversal of fortunes for US stock markets. The Dow Jones Industrial Average (NYSEARCA:DIA) fell 23.2% and recorded its worst first quarter ever. The S&P 500 (NYSEARCA:SPY) had its worst quarter since the fourth quarter of 2008 and fell almost 20%. The Nasdaq Composite Index (NASDAQ:QQQ) was relatively better off and only fell 14.2%. The NASDAQ had its worst quarter since the fourth quarter of 2018. Investors will recall that equity markets crashed in the fourth quarter of 2018 amid an escalation in the US-China trade war, the Fed’s rate hikes, and growing concerns about the global economy.

Meanwhile, even though many pundits predicted a US stock market crash in 2019, markets rose to record highs. The Dow Jones had its best January in almost three decades last year. US stock markets had one of their best years in 2019. De-escalation in the US-China trade war and the Fed’s rate cuts helped improve the sentiments last year. Also, the Chinese economy showed some signs of bottoming out towards the end of 2019.

Overall, 2020 started well for equity markets and the Dow Jones continued to make new highs. However, the US and global stock markets came under pressure towards the middle of February amid growing concerns about the coronavirus. The Dow Jones Index and the S&P 500 entered into the bear market territory, which snapped the 11-year long record bull market. Notably, this was the sharpest bear market on record. The sharp fall in equity markets in the first quarter created scary records. Read US Stock Market Crash: What Does It Mean? to learn more.

Now, we’re into the second quarter of 2020. Some fund managers like Bill Ackman turned bullish as the Dow Jones crashed in the first quarter. David Tepper also brought some stocks, especially in the tech space. Warren Buffett increased his stake in Delta Airlines. However, Paul Tudor Jones warned of a double bottom in US stock markets. In simple terms, a double bottom means that stocks retest their lows before rising again.

The upcoming economic data for March will tell us how severe the coronavirus has hit the US economy. If the unemployment numbers released towards the end of March are an indicator, we’re in for some really scary economic data. China’s economic data also looked scary at the height of the coronavirus outbreak. Meanwhile, China has returned to near normalcy and its March PMI showed expansion. Chinese stock markets outperformed US stock markets in the first quarter.

The first-quarter earnings season will commence shortly. Companies will brief investors on how much the coronavirus has hit them. The coronavirus cases haven’t peaked yet in the US. I think that US stock markets might be weak in April. We should see some sanity as the second quarter draws to an end. However, the Dow Jones Index might retest its March lows in April.

Based on the Dow Jones futures today, markets look set to start the quarter on a negative note. Global stock markets mainly closed with losses today. The ISM manufacturing PMI is scheduled to be released today. A worse-than-expected reading might amplify the Dow Jones’s losses today. Meanwhile, President Trump, who frequently tweeted about US stock markets’ performance under his presidency, has little to tweet about on the markets now. Read Dow Jones Crash Leaves Trump Little to Tweet About! to learn more.