Is Another Huge 2020 Market Sell-off Coming?

It’s hard to say with certainty whether another market crash is coming or not. But if it is, you may want to keep a close eye on some amazing, albeit oversold stocks.

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Have we really survived the worst of what the pandemic has to offer? Probably not. Most experts agree that even if we have managed to brave through the pandemic, the economic repercussions of it will haunt us for many years to come. And that’s contingent upon the virus disappearing completely, which is highly unlikely.

Even if we don’t experience a major fear among the population like we saw when the virus was at its peak, it’s possible that the world faces many small waves until about half the population has been infected or a vaccine is developed and deployed.

Small spells and localized lockdowns won’t hurt the economy as bad as they did in March-April, causing a massive sell-off and plunging the market into chaos. But they will hinder a swift recovery.

Fraser report

Fraser’s new report warns that government helping its people and businesses through stimulus packages is not a viable long-term option. It won’t help the country steer clear from an inevitable recession since it doesn’t translate well into economic growth and increases the government’s debt.

A better alternative would be broad-based, long-term tax relief to both business and individuals will result in better economic growth.

While it doesn’t exactly caution another huge sell-off, it does point towards another issue. Based on that report’s accuracy, we can assume that the TSX recovery we are seeing is not because of an economy that’s being strengthened by government initiatives.

Instead, it’s due to (almost) false hope that’s based on temporary inflation of the economy, because a lot of money is being pumped into the system.

But there is a limit to how much support the government can provide, and if the economy isn’t standing on its own two feet before the government’s “crutch” is removed, we might as well see another huge-sell off. But there are a lot of variables in this equation, and the market may keep bulling through the crisis, thanks to the “optimism momentum.”

A stock to keep an eye on

Cargojet (TSX:CJT) fell about 38% from its pre-pandemic value, in March. But the stock was quick to recover, and it’s already trading at a price 31% higher than its pre-crash highest valuation. That’s one of the swiftest recoveries, especially considering that a massive number of companies are struggling to achieve their start-of-the-year valuation back.

Cargojet is growing just as rapidly as Air Canada did during its prime. But thanks to its business model (Cargo, not people), it recovered and has restarted its rapid growth pace. It’s understandable why the stock is so brutally overvalued, with a price-to-earnings 235 times.

So if another crash is coming, Cargojet is one of the stocks that you may want to consider adding in your portfolio.

Foolish takeaway

Even if another huge sell-off is coming, it might not be as “huge” or as uniformly distributed across all sectors. The businesses and investors are relatively better prepared.

Even if another crash comes, it might be hard to pin down exactly when the market has hit rock bottom, so you may have to take your chances and buy just when you feel that the market is recovering.

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 Adam Othman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends CARGOJET INC.

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