During a global quarantine that was started in March of 2020, U.S. businesses lost billions of dollars in revenue, which should strike hard at the stock market. Global investors, however, were surprised at the uptick that U.S. stocks achieved after 2020 ended its initial period of social isolation. Logic, not to mention basic math, tells us that stock prices can’t rise if business revenues fall. Sure, COVID-19 is influencing the stock market, but the following are also:
Speculators in the stock market watched prices rise amidst COVID-19 without realizing that the U.S. Federal Reserve was behind it. The Fed, after Chairman Jerome Powell addressed the U.S. nation, offered over $2 trillion in loan funding to U.S. businesses. We wouldn’t call the Fed’s loan package a bailout, but based on what investors see, what seems to be a healthy market for stocks is simply an artificial pump up of cash.
The Stimulus Package
Americans can’t move the economy if they’re not working, but the stimulus money they received from the CARES Act had, at least, initiated some cashflow. Not all American businesses benefited from consumer spending in 2020’s initial quarantine. The companies that generated sales from the help of the CARES Act earned enough to keep the stock market appearing to be in good shape. The truth is that we don’t know the economy’s true condition yet.
The coronavirus of 2020 brought with it fear to all Americans. Many U.S. citizens fear the loss of their jobs, a reduced income, or the potential that the stock market will soon crash. The insecurities of Americans, though currently “overshadowed” as of June of 2020, can have a devastating impact on stock prices. The financial packages granted by the U.S. Senate might have only painted over the perceived risks that many Americans still live with.
A Potential for Gold
The stock market steadied while gold prices fell during COVID-19’s spread. Analysts see the current fall in gold prices as evidence of investors putting money into stocks. The problem is that no one actually knows who’s selling their gold. What investors have to remember is that institutions attempted to “rescue” the stock market during the Great Depression also but failed. It’s only a matter of time before we discover the real health of the stock market.
The one thing that we can be sure of, however, is our need to prepare for the worst.