A Look At COVID19’s Influence On The Global Stock Market
Warren Buffett’s famous statement “fearful when others are greedy, and greedy when others are fearful,” continues to be relevant in this day and age, as the stock market continues to be led by fear and greed. Buffett’s statement ties in well with retail investing, where people buy stocks when the prices are low and sell when the prices are high, or in case there unfavorable market conditions that may trigger a stock sell-off.
Slightly over 2.8 million people have so far succumbed to COVID19 and related complications, but that number would likely be higher if it were not for the lockdown and stay-at-home measures. Unfortunately, the COVID19 measures have hurt many businesses, and this impact is felt in the performance of many stocks across the world.
The pandemic has undoubtedly had a massive impact on the global stock market, reflecting on the bearish performance observed, especially in the first half of 2020. Analysts believe that the impact on the stock market was amplified by fear, leading to the stock sell-off.
Investors on high alert
We must evaluate the early days of the pandemic to get a clearer picture of the pandemic’s impact on the global stock market. No other pandemic has had as much impact on the U.S stock market as the coronavirus. The market experienced 18 major price jumps between February 24 and March 24, and roughly 15 of them were linked to the pandemic. There has not been that many U.S stock market jumps since the year 1900.
The many price jumps in the U.S stock market represent investor action in response to policy changes. This is also around the same time that investors were increasingly fearful about the negative implications of the lockdown measures. Research has since revealed that the global stock market lost roughly $6 trillion in the last week of February 2020.
Japan stock market index lost more than 20% of its value during the same period. The Asian country was one of the global markets most affected by the pandemic in the early days, with a high number of infection cases. Other major Asian economies such as Singapore and South Korea also experienced significant losses in stock market value.
Using the coronavirus pandemic to identify the best industrial segments
The rapid viral spread and the resulting measures implemented to stop the outbreak affected almost every industrial segment. Many companies were forced to temporarily shut down their operations while some, especially those providing essential products and services, were allowed to continue their operations with the right measures to protect employees.
Although the pandemic devastated many industries, it did highlight some growth opportunities for various industries. For example, PPE manufacturers had one of the most productive years in history in 2020, translating to more profitability. Companies developing vaccines or a potential cure for the coronavirus faced robust commercial prospects and global recognition for their efforts.
In a way, the pandemic helped investors to see other types of investments through which they could generate a lot of revenue. Identifying those opportunities is an essential ingredient for savvy traders in achieving success because they can invest in opportunities that others are too fearful to see. Companies that provide essential services have proved to be among the safest bests for investors.
How investors have lost money from the global stock market during the pandemic
Many companies have a sizable debt profile as borrowing funds becomes essential in bridging some financial needs. A notable proportion of profits is often diverted into debt repayment, thus eating into investors’ potential earnings. The coronavirus and its huge impact on various industry put companies in an awkward position where revenues were severely affected, with some negatives.
Long-term investors lost dividend revenue, and some companies have been pushed to the wall by debt obligations as they continue to burn cash quickly to try and keep their businesses afloat. Additionally, these rough economic conditions put many companies on the path to bankruptcy. The death of companies in this manner means investors are exposed to huge losses. Companies that survive struggle with low demand and limited cash to work with; thus, profitability is affected for the company and the investors. The value of their investments starts to go down as stocks lose value.
A lack of investor confidence has weighed in heavily against the global stock market, as many of them pulled their funds from the markets and into safe havens such as gold and cryptocurrencies such as Bitcoin to avoid losses. Many currencies experienced a lot of volatility, especially in the early days of the pandemic. Many investors saw it as a threat to their wealth because depreciating currency value translates to eroded wealth.
Consequently, many pulled their money from the stock market and invested in gold, as well as cryptocurrencies. This is reflected in Bitcoin’s impressive bullish performance, especially in the last 1 months.
The global stock market is a perfect example of the COVID19 pandemic’s impact outside the healthcare scope. Losing billions is one thing but losing trillions in less than 30 days highlights just how much devastation has occurred in the market. It could be argued that the market’s strong recovery with prices surging higher than pre-COVID levels, but such a huge loss over a short amount of time was enough to wipe out the wealth of many investors and discourage further investment.
As far as the future is concerned, there is still a lot of uncertainties about the global stock market, especially with the pandemic threat still active. The longer the threat remains, the more the weight on the stock markets. Analysts are now wondering how much more pressure the global markets can take before collapsing under the global pandemic’s weight.