The past months have been tumultuous. The unemployment rate has jumped immensely, and the United States has found itself in a recession. The cause behind the downturn of the economy is largely credited to the coronavirus pandemic which has led to business closures and entire lockdowns. However, despite the downturn in the economy, the stock market continues to be doing well. Why is this? There are a few factors that should be considered.
Firstly, there is optimism surrounding a quick recovery in the economy. Many believe the economy will return to normalcy once the pandemic has been adequately dealt with. This stems from many economists’ predictions that the recession will be ‘V’ shaped. Meaning recovery will be fast and there will not be a prolonged recession once the coronavirus problems are settled. This contributes to positive opinions of the economy for stockholders.
Additionally, the talk of future stimulus checks and an extension of unemployment benefits has given investors hope. If more money is put into the economy, that gives individuals greater spending power. Thereby, the markets would experience an uptick with more spending.
Another contributing factor to stock markets remaining strong despite the recession is the good news surrounding the pandemic. While it is unequivocally true that the pandemic has been massively destructive, there is a great degree of optimism surrounding the future of it. There has recently been positive news about potential vaccines and development of treatments. The strides scientists have made contribute to a positive effect on the stock market because investors are now more likely to believe the pandemic’s end is sooner than once anticipated.
A fourth factor that has contributed to the stability of the stock market is the relative economic normalcy in the rest of the world. Europe in particular has been able to cope with the coronavirus in a way that has not led to an entire economic shutdown and subsequent recession. This has helped to push the US dollar exchange rate lower, in turn providing a boost, especially to publicly traded corporations that earn the majority of their income from outside of the United States.
Finally, the sectors of the economy that have borne the brunt of the pandemic’s economic toll do not have a profound influence on the stock exchange. Industries such as restaurants, theatres, and retail do not comprise a large enough sum of the stock market to have their downturns elicit a substantial effect.
In summation, despite the recession continuing on as the pandemic remains strong within the United States, investors can rest easily knowing that the stock market will likely prevail and continue to grow during otherwise difficult times.
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