Coronavirus & the Economy
What happened during the stock market due to the Coronaviruses outbreak is a painful topic. The coronavirus crisis put an end to a 12-year bull run in the stock market.
It might take several years to recover those losses, but it also may just take a few months. Investors are waiting for a negative convexity curve between the total confirmed COVID-19 cases and the timeline before the stock market finds a bottom.
Last week alone, the Dow suffered through its largest point drop in history, a drop of nearly 3,000 points, and fell below the 20,000 threshold, which erased almost all of the gains made during the Trump presidency.
The US Federal Reserve has lowered their lending rate to 0, has offered 4 trillion dollars of liquidity for the marketplace and just last night Congress agreed upon a $2 trillion dollar bailout package. Will it be enough?
LPL Financial Equity Strategist Jeff Buchbinder said in a note, “A $1.5 trillion stimulus package sounds like a lot, and it is. But given the unemployment rate might be headed to double digits and many impacted businesses won’t survive through the spring without some help, it probably won’t be enough.”
From the perspective of the global economy, a tremendous drawdown has already occurred. In addition to the direct loss of consumers and investors’ confidence from the coronaviruses, asset prices and the overall demand has fallen substantially, debt pressures have increased, and income inequality has also been exacerbated. The poorest workers will have very little savings to rely upon while they don’t have paychecks during this time of national quarantine.
The United Nations announced that there will be a $2 trillion reduction of the global GDP.
This reduction will be heavily burdened by the major exporting countries of oil and other commodities and countries that trade closely with them. Oil is down by over half while everything from silver to copper has fallen dramatically. These countries will see a lower demand on top of the lower asset prices for their goods.
Suffering through the coronavirus, countries could not be isolated and resolve the crisis alone. In ideal conditions, the global macroeconomic responses will be adopted, proactive fiscal and monetary policies will be applied, social welfare support and other relative area will further be developed. By following the business cycle, it’s most likely that the fundamentals of the global economy are reliable, and the economy can be healed with a new equilibrium point.
Compare and contrast this crisis with the other historical global outbreaks, and a wider area and more industries have been affected than we’ve ever experienced since the correlations between each country across different fields are getting higher and higher. But, was it as painful as the 2008 financial crisis, when major banks throughout the world had no liquidity?