Stock Market and the Covid-19 Pandemic – Lee Chandler

The economic fallout due to the Covid-19 outbreak has revealed some surprising, or somewhat unprecedented, trends in the stock market. On 8th of June 2020, the S&P 500 index has returned to what it was at the beginning of the year [1], despite the fact that the World Health Organisation (WHO) have announced that it is ‘no time to take foot off the pedal.’ It was as if the stock market was decoupled from the economy. This article attempts to explore the underlying reasons behind such an erratic trend.

 

The first phase of the trend was the 3% in the S&P 500 index from 30th of January, when the coronavirus first gained attention to the public, to 19th of February where it hit is high [2]. One of the possible conjectures is that people simply did not care about the gravity of this virus, especially considering that the earliest pandemic was the Swine Flu, which swept the world in 2010. As such, it is plausible to argue that both investors and consumers paid scant attention to the upcoming repercussion due to other events, such as Trump’s impeachment and so on.

 

The second phase was the 34% drop in the aforementioned index, marked on the 23rd of March, where a number of infected cases surged exponentially [2]. The volatility of the stock market has also surged as more people started to become aware of this pandemic.

 

The third phase started from the 23rd of March until the 20th of April [2]. Here, a number of government interventions have been made in terms of the monetary policy from the central bank (e.g. lowered interest rate), and the Federal Reserve also announced an aggressive Coronavirus Aid Relief, and Economic Security Act to mitigate the risk [3]. This resulted in the rebound of the S&P 500 index back to the beginning of the year where everything was in its ‘norm’.

 

What this pandemic really tells us is that the stock market is not entirely reflective of the economy. Rather, it allows us to infer how the investors speculate the reactions and behaviours of other investors.

 

References

[1] “Daily Update: June 8, 2020.” Daily Update: June 8, 2020 | S&P Global, www.spglobal.com/en/research-insights/articles/daily-update-june-8-2020.

[2] “Robert Shiller Explains the Pandemic Stock Market and Why It’s Decoupled from the Economy.” MarketWatch, 11 July 2020, https://www.marketwatch.com/story/robert-shiller-explains-the-pandemic-stock-market-and-why-its-decoupled-from-the-economy-2020-07-07

[3] “The stock market and the economy: Insights from the Covid-19 crisis.” Vouex CEPR, 19 June 2020, https://voxeu.org/article/stock-market-and-economy-insights-covid-19-crisis.

 

 

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