COVID-19 & the Stock Market
One of the major long-term repercussions of our socio-economical models and national policies is most governmental bodies not accounting for potential long periods of “no production” or inhibited cash flow and a possible large-scale global recession due to national lockdowns implemented to combat monumental health crisis like the ongoing COVID-19 pandemic. As of the time of writing, we are facing such an economic recession which had directly contributed to an exponential increase in global unemployment. Based on the above-mentioned information, it is logical for one to come to the conclusion that stock markets around the world are collapsing due to this socio-economic strain, however this hypothesis isn’t exactly accurate.
With the start of March 2020, the total number of patients infected with COVID-19 had shot up exponentially (with the World Health Organisation officially declaring it a global pandemic), additionally this novel coronavirus had spread across the world at an unprecedented rate. This medical crisis has led to an extremely high level of uncertainty in the future of the world from a socio-economic perspective, resulting in world governments panicking and implementing draconian national lockdowns and restrictive travel bans in an active attempt to reduce the spread of this dangerous pathogen. From a herd psychology perspective, what immediately happened in major financial hubs was obvious. Due to all the uncertainty created regarding the future of the established financial order, stockbrokers and other major investors started to panic sell stocks over an extremely short period of time, resulting in a massive meltdown of the global stock market system (this was illustrated perfectly during the end of March 2020 when the Dow Jones Industrial Average had the steepest drop since the 2008 housing market crash).
To avoid another crisis similar to the 2008 recession, the US government launched a $2 trillion stimulus package (the largest of its kind) to inject much needed cash into a struggling economy with provisions aimed at helping American workers overcome this crisis. It should be noted that many other countries soon followed suit by injecting cash into their national economies via relief packages. It is believed by several economist and financial experts that these government-backed financial packages have brought back considerable confidence into the stock markets, leading to a “recovery” in these markets. Additionally, a majority of stockbrokers and hedge fund managers share the belief that company stocks are relatively stable (and possibly the best choice) form of investment when compared to other types of assets and many strongly feel that “cash is thrash” in today’s world of lockdowns and shrinking consumer markets. It should be noted that former vice-president Joe Biden’s presumptive nomination as the Democratic party’s presidential nominee and Senator Bernie Saunders steeping down from the 2020 presidential race has left many investors quite confident in the future of the stock market. Most companies and their stakeholders were initial fearful of a potential Saunders presidency due to the long-serving Vermont senator’s left-leaning economic policies and progressive socialist views which would have led to these companies being held responsible for their mistakes and fixing this issue (please refer to the previous writeup which explores how accumulation of corporate debt could arguably be responsible for the current financial crisis), however with a political centrist like the former vice-president of a business-friendly conservative like President Donald J Trump in power, these major companies could expect a government-funded bailout to save the overall economy if things get worse.
A major concern brought up by many prominent financial analysts and economic experts is that the unnatural inflation in the stock market in a time of global recession and rising unemployment numbers (not to mention a lack of operation in most industries) is an obvious example of a “dead cat bounce”. Cats are in many ways similar to company shares, they’re both highly unpredictable yet quite appalling to many individuals (me included). Dead cat bounce or bull rally is a market jargon which refers to a temporary recovery in share prices after a substantial fall, this recovery is caused by speculators buying in order to cover their positions. A morbid comparison would be an actual live cat “bouncing” or jumping being representative of a recovering economy, while someone throwing a deceased cat’s remains and claiming that it “bounced” being representative of a “dead cat bounce”. Even though it is unfair to compare this recession to past financial crisis, it should be noted that past recessions had dead cat bounces (and the share prices dropped after a relatively short period of growth).
Even though there is a global economic crisis with companies hardly functioning and unemployment reaching historically high numbers, one cannot help but wonder how long an artificially inflated stock market could last. Realistically, this stock market hype is expected to hold on for a few more months, however if the COVID-19 pandemic longer than this fixed time period, things are predicted to get much more worse. As illustrated by previous notable economic recessions, companies and other similar organizations cannot survive on life-support or government-funded handouts forever.
Based on the possible predictions of the future of COVID-19 at the time of writing, it looks like things are likely to get worse. In conclusion, the current world order is going to face it’s toughest challenge yet.
