The financial impact caused by COVID-19 on global markets has gone both ways for investors and businesses. On one hand, some companies, such as Apple, Nvidia, Facebook and Amazon have boomed since the virus outbreak. On another hand, transportation, tourism, and clothing industries have experienced detrimental losses. The crash which occurred around March 11th of 2020 in response to the coronavirus pandemic was bound to happen.
Parallel behaviour was evidenced with the stock market crash of the 1918 Spanish Flu. With a loss of trust in the market and coronavirus cases increasing exponentially, many investors sold their shares, and the banks lost clients. Governments reacted by issuing stimulus checks in the hope that these would rekindle the economy. A few days later, the market was on an exponential rise. Stocks were breaking through analysts’ predictions and their price was soaring. This phenomenon was also majorly aided by the quarantines different countries implemented. New infections were decreasing, and people were hopeful of a turning point in the pandemic as well as in the market. It almost seemed as if people forgot that the virus existed, and investors forgot how to value a stock.
In August the market continued to rally and stocks became even more overpriced. With record market highs in September and October, coupled with the start of a second wave of Coronavirus, the global economy is unbelievably volatile. As many key investors such as Warren Buffett have observed, the market is over inflated and its behavior has been very close to the one of the dotcom bubble. Buffett mentions that if the combined value of all stocks is
larger than the global GDP, a crash is likely to occur. Furthermore, the larger the disparity, the larger the crash.
As the US elections approach, the stock market is in an extremely vulnerable position. With quarter earnings due to be released a week before the elections, investors are faced with significant uncertainty. Sectors, such as technology, consumer non-cyclical, and retail have surpassed analyst predictions. On the other hand, sectors like energy, consumer discretionary, and utilities have experienced a significant dip. Taking a step back and looking at the entire economy, the momentum of the summer is dying down. There has even been a noticeable, yet not detrimental dip in big tech equities such as Apple, Twitter and Facebook. Furthermore, with the concern of elections, the market could soon experience a crash similar to the one in March, if not more devastating. There is also great uncertainty regarding whether government stimulus checks will continue. Setting aside the presidential elections, these checks are the only viable short term method of reviving the economy or else we could be looking in the eyes of a painful and long recession.
Filippo Lisanti
In August the market continued to rally and stocks became even more overpriced. With record market highs in September and October, coupled with the start of a second wave of Coronavirus, the global economy is unbelievably volatile. As many key investors such as Warren Buffett have observed, the market is over inflated and its behavior has been very close to the one of the dotcom bubble. Buffett mentions that if the combined value of all stocks is
larger than the global GDP, a crash is likely to occur. Furthermore, the larger the disparity, the larger the crash.
As the US elections approach, the stock market is in an extremely vulnerable position. With quarter earnings due to be released a week before the elections, investors are faced with significant uncertainty. Sectors, such as technology, consumer non-cyclical, and retail have surpassed analyst predictions. On the other hand, sectors like energy, consumer discretionary, and utilities have experienced a significant dip. Taking a step back and looking at the entire economy, the momentum of the summer is dying down. There has even been a noticeable, yet not detrimental dip in big tech equities such as Apple, Twitter and Facebook. Furthermore, with the concern of elections, the market could soon experience a crash similar to the one in March, if not more devastating. There is also great uncertainty regarding whether government stimulus checks will continue. Setting aside the presidential elections, these checks are the only viable short term method of reviving the economy or else we could be looking in the eyes of a painful and long recession.
Filippo Lisanti