Showing posts with label Pandemic. Show all posts
Showing posts with label Pandemic. Show all posts

Monday, March 22, 2021

How the Pandemic Has Impacted the Stock Market

Expect the unexpected. It’s good advice across a wide variety of circumstances –– and it especially applies to investing. Relying on past performance or historical averages is a mistake. So is the failure to diversify. 

At some point, stock prices will fall. It’s inevitable. Some companies try to game the system by engaging in fraud. If you’re employed by one, know that you have reporting protections as an SEC whistleblower.

Although there have been warnings about global pandemics for years, few saw one happening in 2020. No one could have predicted the ways it has radically altered our lives. Nor could anyone have foretold the impact it had on investments. So how has the pandemic affected the stock market in the United States?

Plunging Markets

In February of 2020, the novel coronavirus that causes COVID-19 was detected across the U.S. and Western Europe. Although the pandemic’s worldwide spread might have been unpredictable, the market’s response wasn’t. 

Across the globe, stock indexes plummeted as nervous investors sold across sectors. In the U.S., on Monday, February 24th, the Dow Jones Industrial Average dropped over 1,000 points. Its more than three percent drop was matched by the falling S&P 500 and Nasdaq indexes. Across the board, markets lost nearly one-third of their value between January and the end of March.

Rising Values

By April, many investors had abandoned the market entirely. With the benefit of hindsight, they might have held on. That’s because even as the overall economy seemed dire, the market began to improve. 

After the Federal Reserve indicated it would maintain historically low interest rates, investors sought better returns in everything from gold and bitcoin to real estate and equities.

With millions working from home for the first time, it made sense that the tech companies supporting the transition would benefit. Video conferencing company ZOOM, for example, increased in value by nearly 500%

Besides remote workers, millions more were forced to stay at home –– which benefited companies like Netflix, Amazon, and Apple, along with many smaller tech firms.

This largess was spread unevenly. Some businesses that closed their doors in March never reopened. Besides bars and nightclubs, restaurants, nail salons, and many other small businesses went out of business. 

Yet large chain stores like Target, Walmart, Publix, and Ralph’s remained open throughout the pandemic. This was reflected in earnings reports as they reported high profits even as fitness and department store chains filed for bankruptcy.

Similarly, workers able to work from home endured and even thrived while laid off retail and hospitality employees struggled. Those still employed or with private incomes led to an influx of new investors. After being forced on the sidelines by prices they felt were too high, they helped drive the U.S stock market to new heights.

On November 24th, the Dow Jones Industrial Average hit a record high of 30,000. Besides this significant psychological milestone, the month was equally record setting. After giving up some of its gains, it closed out November up nearly 12% –– for the month, not the year. The last time it did so well was in January of 1987.

That year stands as a beacon for investors since, on October 19, 1987, U.S. markets dropped over 20%. Panicked sellers locked in their losses. Yet, if the pandemic has proved anything, it’s that timing the market is a fool’s game. Instead, experts recommend dollar-cost averaging

Putting a fixed amount into the same fund or stock every month regardless of daily fluctuations is a proven wealth builder. Unless you have a working crystal ball, it’s the best way to prepare for the unexpected.

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