Market Crash: Is a 2nd Round Coming?

With North American stock markets rallying as the economy continues to see pain, is a second market crash likely in 2020?

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There are a lot of misconceptions about the coronavirus and how long this market crash will last. Although some of the states in America as well as some Canadian provinces are starting to open, the pandemic is long from over.

First off, there is no vaccine yet. And most experts believe that the most optimistic timeline for a vaccine is next January at the earliest.

Second of all, a vaccine is not a cure. Vaccinations are designed for the wide population to try and help build up an immunity to a disease. This means that there could be some people who the vaccine doesn’t work on.

Furthermore, since it’s not a cure, there is still nothing it can do for those who catch the virus before the vaccine is ready or for those it doesn’t work on.

Until these two significant issues get solved, coronavirus will remain prevalent in our daily society.

The problem is, governments can’t shut down the economy for a year or more waiting for a vaccine and a cure.

While health care is of the utmost importance for our society, a close second is financial livelihood. Governments today have the tough job of trying to balance both and keep everyone satisfied and safe.

Will the market still crash if the economy re-opens?

Keeping everything balanced is why we are starting to see the economies re-open. The problem is, if you move to quickly and have to shut things down again, there will most certainly be another market crash.

As much as it is a positive sign that lockdown restrictions are easing, and workers and business owners can go back to trying to earn a living, things will be far from normal.

If we were to open up everything fully, there would be some economic casualties of the last six weeks. But that isn’t the case. The economy is opening at a gradual pace, and many businesses will need to remain at significantly reduced capacity.

During this decreased capacity, it’s likely that although the economy is open, businesses will struggle to break even. And the longer that goes on, the more businesses will inevitably fail, and jobs will be lost.

So, whenever life returns to normal, we will more than likely be in a recession.

Even if you don’t think that will happen, it’s still too early for the market to be recovering like this. We are only a few months in, likely still eight months away from the most optimistic timeline for a vaccine, and many believe there will be a second wave in the fall that will be as bad as or worse than the first.

Because of this, I think the more the market rallies in the short term, the more vulnerable it’s becoming to a second market crash.

TSX stock for a market crash

One stock that can protect your money during a market crash and recession while also offering passive income is Emera (TSX:EMA).

Emera is one of the top utilities and best recession-proof stocks on the TSX. The company gets more than 90% of its revenue from regulated utilities. The majority of its utility income, over three quarters, comes from electricity transmission and distribution.

Also, Emera gets a significant amount of income from natural gas distribution and transmission as well as other unregulated power generation.

The company operates in multiple jurisdictions in Canada, the United States, and the Caribbean. This gives it significant geographic diversification, which helps mitigate risk. Furthermore, the company has considerable leverage, but it’s nothing it can’t handle.

As of Monday’s close, the stock was trading just over 10% off its 52-week high and offering investors a 4.5% dividend yield.

That’s a pretty attractive valuation for one of the safest stocks you can buy ahead of a market crash.

Bottom line

If you look at what’s going on with the economy and how things are progressing with public health, it seems another market crash is more likely than not.

Last time, it came out of left field. This time, the warning signs are clear. So, don’t get caught off guard this time and make sure you own reliable stocks like Emera.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Daniel Da Costa has no position in any of the stocks mentioned.

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