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The COVID-19 Effect on the Stock Market

By: Julia Garelick

Monday, March 9, marked the beginning of the stock market decline of 2020 and of one of history’s largest point plunges. This date was followed by two record-setting point drops and includes the three worst point drops in U.S. history. The drop was primarily caused by unbridled fears due to the evolving global pandemic. This dramatic 2020 market decline is still in action, and it is important to understand what is happening and why. By analyzing the data of the decline, hopefully it will allow us to anticipate what may happen next with the economy. With the stock market focused on forward-looking profitability, it should come as no surprise that the sudden measures undertaken and the uncertainty surrounding how long these measures may be necessary have led to record-breaking volatility.

The market has reacted to recent unpredictability with large drops, triggering a market wide circuit breaker four times in March. The safeguard paused trading for 15 minutes in hopes that the market will calm down. The United States Securities and Exchange Commission mandated the creation of market-wide circuit-breakers to prevent a repeat of the October 19, 1987 market crash, in which the Dow plunged 22.6%. On March 16, the Dow hit a new record. It lost 2,997.10 points to close at 20,188.52. That day’s point plummet was so large that it even topped the original October 1929 Black Monday crash during the Great Depression. The 2020 crash occurred due to the fact that most investors are worried about the impact of the COVID-19 pandemic. Coronavirus mortality rates are so far higher than the seasonal flu rate, and on March 11, the World Health Organization declared the disease a pandemic. The organization was concerned that government leaders weren’t doing enough to stop the rapidly spreading virus. However, coronavirus wasn’t the sole spark of the crash. There are other stresses that led to the 2020 crash that have been building for a long time. Investors have been nervous ever since President Donald Trump launched trade wars with China and other countries. By February 27, prior to the pandemic declaration, the Dow had skidded more than 10% from its February 12 record high. 

If one has retirement savings or other funds invested in the stock market, the crash lowered the value of their holdings. When something like this happens, many people panic and sell their stocks to avoid losing more. But the risk with this strategy is that it’s difficult to know when to re-enter the market and begin to buy again. As a result, many could lose more in the long run, and studies have determined that on average, market crashes tend to last 22 months. Most financial planners recommend that people should wait it out.

Overall, the effects of COVID-19 on the stock market have been drastic and even record-breaking. People around the globe are suffering financially, and it is important to be mindful of the occurrence of this downward spiral of the economy. This novel form of the coronavirus is more serious than anticipated and is powerful enough to change our economic standing for the foreseeable future. Financiers are hopeful that we will recover and that the market will be back to its usual position sooner rather than later.

Photo courtesy of Associated Press.