The stock market, despite many hiccups, has nearly recovered all the losses suffered during the coronavirus pandemic, an epic journey during one of the worst economic collapses in U.S. history.
The panic caused by COVID-19 was immense, and it showed in the stock market. News of the pandemic caused the stock market to fall in March 2020, while the news of a vaccine is now causing a rapid increase in the stock market.
Economic turmoil associated with the COVID-19 pandemic has had wide-ranging and severe impacts upon financial markets, including stock, bond, and commodity markets. The Dow Jones and the S&P 500 plunged about 35% within six weeks this spring. The fastest ever fall from record levels into a bear market, as the economy shut down and the virus spread across the country.
Since then, U.S. stocks have been on a winning streak that is unprecedented in the modern era of financial markets. Goldman Sachs Group Inc. analysts recently said they expect the S&P 500 to hit 3600 by the end of 2020, a 6.4% increase from Monday’s close. Bank of America analysts said they can envision stocks will advance rapidly.
In the middle of the deepest recession in memory, stock markets are reaching new highs. Why the disconnect? First, many investors still take a long-term perspective; they are looking ahead to the end of the pandemic. Another factor: five big-tech companies now make up 21 percent of the S&P 500, one of the world’s most-watched markets. And smaller, unlisted companies have absorbed a lot of the economic damage, such as the dramatic rise in unemployment. The overall stock market can do relatively well even when employment and GDP are severely depressed.
The stock market is filled with huge companies, but the main street damage from COVID-19 is crushing bars, restaurants, gyms, dentists, and many tiny businesses that are mostly invisible to the stock market. The stock market does not necessarily reflect the economic damage done to main street or family businesses.
Since the stock market represents an important signifier of the current state of the economy, its recovery can help people feel one step closer to normalcy.
