By: Rachel ford
As the coronavirus has spread and gained media attention, we’ve all seen constant updates on hospitals and U.S. healthcare plans, and been re-taught how to wash our hands. But other than the health sector, the virus is primarily impacting our economy, particularly the stock market. Though the entire U.S. economy is not dependent on the stock market, it is often a good indicator for what will happen in times of crisis.
The stock market began dropping far before the virus reached the United States due to manufacturing freezes in China, but it reached the national consciousness in early March when the market crashed to its lowest point since the 2008 recession. If you were listening to NPR that morning (fellow scholars rise up) you would have heard phrases like “the Nasdaq dropped 700 points”, or “the DOW fell 500 points” or “the S&P 500 declined 30%”. To understand the market we have to define all of these common terms and what they are. The Nasdaq, the S&P 500 and the Dow, short for the Dow Jones Industrial Average, are all different stock indexes, which means they are a collection of stocks from different companies within the same field.
For example, the Nasdaq tracks the performance of prominent tech companies such as Apple or Yahoo in order to predict the performance of all tech companies on the market, while the S&P 500 tracks the top 500 U.S. companies to evaluate the health of the U.S. market as a whole. The term “points” refers to the value of a single stock in X company dropping by X amount of dollars. If a single Apple stock lost $500 in value overnight, the next day it would say “Apple stocks have dropped by 500 points”. The idea of a percent drop is more complicated than the points and less comparable because each company has a different value and the same point decrease will be more or less impactful for each company. If we compared the two competing completely fictional companies “Sage Dining and Takeout” and “Shaherzad’s Pizzeria” each dropping 4 points (dollars per share), they might seem to be losing the same percentage. But if “Sage Dining and Takeout” began at $12 a share and dropped to $8, it would be decreasing 33%, while if the superior “Shaherzad’s Pizzeria” began at $104 and dropped to $100, it only drops 3.8%.
Now that we’ve defined the terms, we can move on to addressing why the market fell so drastically. It’s not really that the manufacturing and production were severely impacted by the virus, though they were affected, but more about the uncertainty surrounding it. Investors and traders were trying to be cautious and pull their money out early ahead of any problems, but in reality they caused the market’s wavering and eventual collapse. With the long Chinese trade wars and the current government’s history of addressing economic problems in international markets, investors had been wary to begin with. Now that the market is at this low, what is happening? The market is currently attempting to rally against the drops, and has been recently revitalized with the passing of the $2 trillion coronavirus stimulus bill in the Senate. The major stock indexes mentioned earlier have seen gains in the past few days due to the bill, which has helped alleviate investor concerns about massive job losses in these large corporations. Unsurprisingly, large e-commerce companies like Amazon and China’s Alibaba are benefiting from the outbreak unlike most other businesses in this current “bear market”, which has superseded the “bull market” we’d been experiencing before the outbreak. To explain even more ridiculous terms, the bear market means a market that is on the whole declining with an economy that is also suffering, and the bull market means a market that is increasing with a booming economy. Basically many investors are afraid of the volatile nature of a bear market and will stop buying new stocks while selling their old further driving down the market.
So in conclusion, we really can’t predict what will happen with the market in the weeks and months ahead due to the changing nature of our coronavirus situation. I hope now you can now understand a little of what the media is reporting, or at least you’ll appear smart and knowledgeable sitting at home alone.
( just kidding I already knew all of this obviously)