When the year 2020 first began, it started off with a bang. The stock market was already at record highs and many people could not believe that it was continuing to go up. Every signal made it look like the market was simply going to continue to climb, leading to massive rates of return for everyone who had money in the stock market. Then, something that could not have been predicted happened.
The coronavirus pandemic hit and one of the worst public health crises in human history led to an economic one as well. As many countries were forced to shelter in place, all non-essential businesses were forced to close. As a result, the revenue streams for countless companies started to dry up and countless individuals were laid off. The stock market quickly turned south. By the month of March, the stock market head drops more than 20 percent. By April, the stock market had dropped more than 35 percent in a single month.
Financial markets around the world quickly began to plummet. Extraordinary Measures were taken by all countries to try to limit the economic impact of the coronavirus pandemic. As a result, the stock market started to turn around. Regardless of the stock market, you should prepare your finances for a global crisis. Check out Rigstone website for some great ideas.
Does This Mean the Economy Is Getting Better?
With many stock markets around the world, including the Dow Jones Industrial Average, so I can turn around, there are many people who are wondering if this move the economy is getting better. The reality is this is not the case.
There are many parts of the world where countless Industries have not yet been allowed to reopen. Furthermore, the travel and hospitality industries continue to suffer because travel restrictions are still in place. As a result, many people who work in these industries are still looking for work.
On the other hand, those who take a look at the current stock markets are going to realize that the market has recovered. What does a mind, it may look like the stock market is not an accurate reflection of the current economy. As a result, many people are wondering if the stock market is being artificially inflated. If this is the case, does this mean that the stock market is headed for another crash? When might this happen? There are several keys to keep in mind.
The Federal Reserve Is Propping Up the Stock Market
The reality is that the Federal Reserve has taken numerous actions that are artificially inflating the stock market. Keep in mind that back in March, when the pandemic first hit, the Dow Jones dropped from more than 29,000 points to less than 19,000. This was a low point that had not been seen in more than three years. The S&P 500 mirrored many of these sifts.
After this, the Federal Reserve took a number of actions to try to prop up the stock market. In March of 2020, the Federal Reserve conducted an unlimited quantitative easing program. In addition, the Federal Reserve also lowered interest rates to zero. Finally, the Federal Reserve also reduced the reserve requirement rates for all banks in the United States to zero as well.
Finally, it is impossible to ignore the fact that the Federal Reserve has printed more than three billion dollars, as reflected by a major rise in the M2 Money Stock.
Clearly, if the Federal Reserve is doing everything it can to get more money into the economy, this is going to increase the stock market. On the other hand, this does not necessarily mean that the economy itself is getting better. These are artificial measures that are simply designed to hold the line until the pandemic another view mirror. At the same time, because the endpoint of this pandemic might not be coming anytime soon.
The Virus Is Still in Control
Even though it is true that the massive economic turnaround that has been seen during the past few months it was due to the coronavirus pandemic, this does not mean that the coronavirus pandemic is going to go away anytime soon.
The temperatures outside are starting to drop, which means that the coronavirus pandemic could be getting worse. With the seasonal flu rolling around in the near future, this is going to act synergistically with the pandemic, making both of them worse. As a result, everyone should be prepared for a second wave. This could mean that the economic impacts are going to get worse.
In addition, it is important to note that the endpoint of the pandemic is not going to be behind us just because a vaccine is developed. It is going to take a tremendous amount of time to manufacture enough doses of the vaccine and distribute it to enough people to generate herd immunity. Only then will the coronavirus pandemic truly be behind us.
With a vaccine not being available until 2021, it is clear that we are still a long way away from the end of this pandemic. Therefore, we are also still a long way away from the point of economic recovery. Everyone should be sure to hunker down for the long haul. The stock market to be headed south sometime soon.
The Future of the Stock Market Is Hard to Predict
In the eyes of most people, it looks like the stock market is continuing to climb even though it has no reason to. After all, the market is being artificially inflated by the actions the government is taking. Even though many people are very happy to see that the stock market has continued to climb, it may not last.
Many people, including financial experts, or holding their breath, waiting for the market to turn around once again. It is important for everyone to be very aware as 2020 continues to roll on and 2021 approaches. In addition, the presidential election is going to have an impact on how the stock market responds. It will be interesting to see what happens next.