Explaining The Stock Market Boom During A Pending Recession
Explaining The Stock Market Boom During A Pending Recession
As the novel coronavirus pandemic swept and continues to sweep its way across the world, the prevalence of the disease has led to the deaths of hundreds of thousands of people, strained healthcare systems, and a necessary adaptation of social distancing as well as production decreasing measures.
With the closure of in-person events comes the inevitable financial sufferings of millions of people. Closing small businesses, movie theaters, local shops, airline services, and trip services are leading to skyrocketing unemployment rates across the world. Gone are the days where people left their homes to order pizzas, go on vacations, or take nights out with friends.
Stock Market Movement
Instead, many people find themselves newly unemployed, barely scraping by, and both the emotional and economic impacts of the virus were and continuously are detrimental to countries across the world. The United States of America in particular, hit with a severe wake-up call for stronger healthcare, lost thousands of lives whilst also beginning to experience a newfound panic for toilet paper.
And yet, despite the obvious presence of recessionary forces acting within the economy including sky-high unemployment, closing businesses, and decreased consumer spending, the stock market somehow continues to experience a booming plethora of activity.
This article will delve further into an explanation of this somewhat strange stock market boom during the pending recession caused by the novel coronavirus.
The Federal Reserve’s Efforts
In America, this is largely due to the Fed or the Federal Reserve. As the central bank in the United States, the Fed has been taking rigorous measures to cushion the recessionary blow on the economy. In mid-March, the Fed began to take rigorous actions to stimulate the economy by increasing the money supply.
According to Business Insider, the Fed injected nearly $5 trillion into the US economy and within the next few days, the Fed also cut interest rates to be as close as possible to 0%. By increasing the money supply by such a large amount and decreasing interest rates, the Fed incentivized loans and investment spending in hopes of creating a ripple effect on the larger economy.
On April 9, the Fed continued its drastic measures with another $2.3 trillion to support businesses and lend to those who needed it within the economy. This had notable effects on several small businesses as well as, most notably, Goldman Sachs.
While unemployment continues to rise and consumer demand plummets, the Fed repeatedly confirmed decisions to buy bonds, increase cash flow, and liquidate cash markets.
While the Fed has not directly involved itself with the purchasing of stocks, the actions of the Fed have demonstrated that in these difficult times, the central bank is willing to forcefully stimulate the economy and continue to do so until it becomes unnecessary.
Through these difficult times, Congress has also been working against the recession with stimulus checks. On March 27, Congressional representatives approved the Coronavirus Aid, Relief, and Economic Security or the CARES Act, providing a $3.3 trillion stimulus for American citizens. Each individual received $1,200 and each dependent received $500.
The providing of these funds for American people worked more directly than the Fed’s efforts, as the money each individual and dependent received facilitated more consumer spending as well as proper funding for those who were unemployed or could not afford basic necessities.
The Health and Economic Recovery Omnibus Emergency Solutions or HEROES act is also currently in the works, though it may not be passed as easily.
The efforts of the American government and the central bank have generally been in support of those suffering from the pending recession and the injected relief has allowed the economy and many people to recover with more than what they would have had without such assistance.
As these efforts have their impacts on American society, investors have come to gain confidence in the Federal Reserve and its ability to keep the stock market afloat. People have come to trust Congress to supply money and coronavirus relief efforts to those who need it.
As a result, both investors and everyday consumers are continuing to invest in stocks and make some, though not nearly as many, online and nonessential, entertainment purchases. Simply put, people generally have faith that the American economy will not continue to bottom out.
Though the coronavirus has caused inevitably unfortunate destruction to many people and businesses, it has also generated booming business and success for some others. While airline companies, Airbnb, movie theaters, and dine-in restaurants may be suffering, other online industries actually manage to thrive.
The most notable example of this is Zoom, a virtual conferencing platform that has become the default for many students, businesses, and universities as meetings are held from a proper social distance. In fact, due to the coronavirus, the BBC reported that Zoom’s share price managed to increase by $131.1%.
Amazon, the online shopping website, has experienced a 26.9% rise in share price while Netflix, the online media streaming service has also found a similar 28.9% share price increase.
The online company industry in particular has experienced flourishing economic growth that appears to be unparalleled anywhere else. Other prospering companies include Clorox (disinfectant product), Procter & Gamble (consumer goods manufacturer, notably toilet paper), Doordash (online food order), and many, many more.
Stimulating the Economy
As the world adapts to a changing, more technologically focused situation, several successful businesses are also adapting foolproof methods to maintain profits and support their employees. The American economy continues to be stimulated by shopping for essential goods and services, such as groceries, and the online developments of the technologically advancing world.
While these efforts to stimulate the economy, according to the International Monetary Fund and several other expert economists, may be in vain as we prolong the inevitable recession, the consensus seems to be that America should tackle these issues with a present-day mentality.
Our expansionary efforts may hurt us in the long run, but the current efforts to stimulate the economy amidst the coronavirus crisis have been successful and will likely continue as the pandemic continues to be a detrimental issue throughout the world.