The United States stock market is widely used as a barometer of how the economy is doing. Due to the size of the U.S. economy, it can also be a good test of how the global economy is doing as well. Lately, it’s been used as a metric of how the U.S. is handling the coronavirus pandemic.
Sharp rises and falls have been the norm this year. However, what will happen when this pandemic is over?
This is what you can expect from the stock market after the pandemic.
The stock market reflects investors’ expectations
When investing, it’s important to remember that the stock market rises and falls based on investors’ expectations. If investors are optimistic about the present/future, the market will rise. If investors are nervous or pessimistic then the market will fall. A good way to get a glimpse of this is to look at the pattern of the market over the course of 2020.
- Mid-February – The market plummeted 30% because of the coronavirus pandemic. Nobody knew how serious it would be and there was thinking that it could cripple the U.S. economy.
- Late March – The market started to reverse course for a few reasons. #1) The government announced a stimulus package to keep businesses and people afloat. #2) Even though some industries struggled, the pandemic made other companies much more valuable.
As cliche as it sounds, there is always a bright side to any economic situation. Even though investors might panic at first, eventually they will recognize the potential upsides and regain their confidence.
Let’s take a look at two factors that will influence the market in the next few months.
Factor #1: The election
Despite what some people would like you to believe, elected officials don’t have nearly as big of an impact on the stock market as they’d like you to think. That’s because investors look at the results of businesses, not policy.
However, the policy that politicians set will indirectly affect businesses, so politicians do play a small role. This is especially true right now because the person sitting in the White House will control how the country handles the coronavirus response.
The coronavirus response will play a huge role in investors’ expectations because it will impact how businesses are allowed to operate.
The aftermath of the pandemic
Right now, there is no clear deadline for when the pandemic will “end”. In fact, it could become something that we live with regularly, just like the flu season.
However, there should be a time when life returns to normalcy and businesses are allowed to operate at full capacity again. When that time comes, investor optimism should be at an all-time high. Of course, this is assuming that there isn’t a strong second wave of coronavirus and that the government doesn’t institute another shutdown. If there is one thing that’s fairly certain when it comes to the U.S. economy, the stock market has always trended up and to the right over the long term.
We hope that you’ve found this article when it comes to understanding what you can expect from the stock market after the pandemic. If you’re interested in reading more, please subscribe below to get alerted of new articles