The COVID-19 pandemic has impacted the stock market and caused a sudden crash. Even major stocks are in decline, which nobody expected as we entered the new decade.
At this point, 30 million Americans have filed for employment, and millions of small businesses are asking for forgivable loans to stay afloat. US GDP could even decrease to an annualized rate of 40% in the second quarter.
In this article, we’re going to share some recent updates about the coronavirus pandemic, its effects on the stock market, and what to expect for stocks in the future.
Amidst the economic chaos, the stock market saw some enormous gains since falling back at the end of April. The S&P 500 increased by 13%. Some say it was the best month for stocks in the U.S. since 1987.
It isn’t unheard of for Wall Street to see an improvement before Main Street. That’s because the stock market is different from the economy.
However, there’s still a risk, and investors may not be ready for the upcoming economic and health challenges.
Investors dumped a lump sum of liquidity into the financial markets and earned big because of it. We aren’t likely to see a significant selloff in the stock and bond market since the people who wanted to cash-out are looking for ways to enter back into the market for bonds and stocks.
In volatile trading, stocks fell on Friday, and Wall Street closed out on its worst week since the end of March. Amidst the downpour of economic reports, tensions between the U.S. and China are growing.
This week, the Dow Jones Industrial Average and S&P 500 were both down at 2.7%. Nasdaq dropped 1.9%. The U.S. monthly retail sales dropped by 16.4% during April.
Recent data also shows a positive effect on consumer sentiment. The University of Michigan’s consumer sentiment index rose at the beginning of May. The U.S. fiscal stimulus has improved consumers’ financial health and attitudes about shopping.
But, the conflicts between China and the U.S. are affecting market sentiment. Trump’s administration moved to block semiconductor shipments to a Chinese company called Huawei.
The aim is to strategically halt Huawei’s acquisition of the semiconductors that are a product of U.S. technology and software.
Hu Zijin, the editor-in-chief of a Chinese state-run publication, tweeted that China would limit or investigate some U.S. companies, including:
- Cisco Systems
Additionally, semiconductor manufacturers AMD, Skyworks Solutions, and Nvidia fell more than 0.8%.
The Federal Reserve
Because of the lockdown, the Federal Reserve has delivered a massive stimulus to combat the economic turmoil caused by the pandemic.
The Federal Reserve is erring on the side of caution, holding firm to what biotech analysts and virus experts are saying.
All we know for sure is that the virus poses a serious risk to the economy. Smaller companies going bankrupt will start to affect production capacity, and unemployment could continue to rise.
Late-March lows include Facebook (F.B.), Amazon (AMZN), Netflix (NFLX), and Apple (AAPL). S&P 500 traded about 19 times its anticipated earnings for 12 months.
Valuations are at risk of worsening because analysts aren’t finished with their estimates. The market valuation goes higher the more they cut, even if the stocks don’t move.
Based on the past, stocks aren’t known to rise when earnings decline. The economy will recover eventually, but the data doesn’t match up with people’s expectations.
Investing During Coronavirus
2020 has posed some unexpected challenges, especially for those investing during coronavirus. Investors are on edge, and they’re at risk of making serious mistakes.
Many investors are too reactive and prone to “availability bias.” The term refers to the human tendency to overvalue the importance of current events. As a result, investors start to rely on headlines to help them make decisions about investments.
Always think about your long-term strategy and think through all of your decisions with your plan in mind.
Remember that we are in a bear market:
Bear markets are bad if you want to sell stock or need immediate access to your funds.
However, if you want to invest long-term and hold your shares for an extended period, take advantage of the bear market. You may be able to increase your returns in the long run.
Regularly investing is important, even if it’s a small amount. If you still earn a steady income, there are few reasons not to start investing. The sooner you start to invest, the more you will benefit from compounding.
If you already started investing, don’t pull money out of the market and lock in your losses. If you are in a difficult situation and have no other means of staying afloat, of course, you should dip into those funds.
That’s why it’s essential to prepare for times like these, no matter how unlikely they are. If you save and invest money routinely, you may not have to be in this type of position again.
Here are some more things to keep in mind when deciding whether you should invest:
- Do you have enough money in your emergency savings?
- When do you need access to this money?
- How much risk are you willing to take?
- How much money do you actually have?
If you want to invest, but don’t want to dive into the stock market right now, consider making larger contributions to your retirement accounts. That counts as investing too.
The main reason why the S&P 500 index has seen gains is because of major tech companies:
In April, these companies accounted for around 20% of the S&P’s total value.
The reason these shares are experiencing such a significant rebound is that these businesses have benefited from stay-at-home orders. For example, the Nasdaq composite wiped away its losses for 2020.
Amazon and Apple are two more prime examples of how some companies have found new ways to motivate consumer spending.
In late April, Apple said that its revenue grew by about 1% within the first three months of 2020, and it was able to recoup after declining sales in China.
Business is booming for Amazon as consumers are making more online purchases and spending more on cloud-based computing.
Amazon reported that it reached $75.5 billion in sales during the latest quarter (an increase of 26% from a year earlier), although profit fell around 29% ($2.5 billion).
Jeff Bezos said that this figure would likely continue to fall. The company usually makes about $4 billion in operating profit during the next quarter, but they expect to spend all of that money on coronavirus related expenses and keeping employees safe.
Trouble Next Flu Season
Michael Mina, a doctor and assistant epidemiology professor at Harvard University, says that we might see a spike in coronavirus cases next flu season. Then, potentially another market crash.
The surge in cases would be a result of thousands of cases acting as the source of a massive spread, rather than a small number like last time.
COVID-19 would jump around quickly. The country needs to have a vaccine or another type of treatment before lightening up on social distancing measures.
If social distancing measures don’t change, many businesses can’t operate how they used to. Even when allowing people in limited capacities, companies can’t sustain normal operations. The safety of the public is paramount, but it will affect the economy in drastic ways.
Experts say the pandemic is far from over, and that it might pick up again after summer. At this point, it’s tough to keep hope alive.
Biotech analyst Matthew Harrison suggests that the end of the pandemic won’t come around until a vaccine is available. Spring of 2021 is the earliest this could happen.
With so much money pumped into the financial markets, and the lockdown measures becoming less restrictive, some states are creating guidelines for reopening.
Nonetheless, the economy isn’t expected to rebound anytime soon. Investors buy shares based on forecasts of what will happen later in the year, not what is happening right now.
When the economy reopens, it will take a lot of trial and error. Some employees won’t be able to return to work, and large venues like stadiums, amusement parks, and concert venues will have to remain closed or limit their capacity. Wall Street economists expect the second-quarter data to show a 40% shrinkage of the American economy.
This figure is making a lot of investors panic, and people are jumping to sell. As a result, buyers can purchase stocks at low prices.
At some point, the market will reach a bottom, and the bad news won’t shock people and cause a huge selloff. That’s usually a sign that there is a rebound coming. Hold firm and remember that there’s a light at the end of the tunnel.
Although the stock market may continue to tumble and see big drops, it will recover at some point.
Bio: Chris Muller
Chris Muller is a financial writer and digital marketer – he started a digital marketing business in 2015 that focuses on freelance writing, content marketing, and SEO – all while working full-time and playing dad to two kids.