Experts have been describing the current situation on the stock market as a coronavirus bear market. The Dow Jones fell by a record-breaking 2,997 points on March 16th, before breaking another record and gaining 2,112 points on March 24th.
We have never seen that kind of movement amplitude in the past, but recent movements suggest we are headed for an economic recovery.
The stories behind the worst first quarter in history
April 1st saw the worst first quarter in history for the Dow Jones, only six days after the index gained 1,351 points on March 26th.
The Dow Jones dropped by more than 1,000 – or 4%- on April 1st, and the S&P 500 fell by 4.87%, with the NASDAQ performing in a comparable manner.
After a relatively stable few days, these sudden drops are the combined result of a few announcements that were made on April 1st:
The combination of these three events created a strong announcement effect on the stock market LOO.
Even though April 1st marked the worst first quarter in history, it’s important to look at the trend over the days that preceded the beginning of the month.
After dropping on March 27th, the Dow Jones gained a total of 650 points over the course of the day on March 30th. On March 31st, the Dow Jones dropped by a little more than 200 points.
April 1st saw a drop of 4%, but the Dow Jones had a strong opening on April 2nd with the index gaining 400 points between 9:30 and 11:00am EST, and ending the day with a total gain of almost 580 points.
On April 1st, the Dow Jones temporarily gained 200 points thanks to the oil market. Widespread lockdowns mean that oil consumption and demand are dropping. Producers have a surplus and oil is rapidly losing its value.
Russia and Saudi Arabia are expected to reduce their production to match low demand and reduce the oil surplus. Oil prices can then rise again as more producers follow suit.
On April 1st, Chevron stock went up by 11.9% and Exxon Mobil increased by 9.7%. The S&P 500 went up 1%, mainly thanks to the performance of the energy sector.
Are we headed toward an economic recovery?
Some sectors are hit harder than others by the coronavirus outbreak and will not recover immediately. Cruises, airlines, hospitality and other travel-related industries won’t be to able to recover until lockdowns stop.
However, pharmaceutical companies, tech companies, and the oil and energy sectors have the potential to drive an economic recovery.
Furthermore, the $2 trillion coronavirus stimulus package could play a significant role in an upcoming economic recovery. Combined with low interest rates, this stimulus package will boost consumption in the near future.
The stimulus package will support consumers through $300 billion in cash payments and $260 billion in additional unemployment benefits.
Additionally, large corporations will receive a total of $425 billion in relief, including $17 billion going toward national security. The government will spend $350 billion in loans for small businesses.
Even though March 27th saw stocks fall, the stimulus package contributed to the 12.8% increase in the Dow Jones and the 10.3% increase in the S&P 500 for the week ending on March 27th.
A volatile market
There are no historical precedents quite like the coronavirus outbreak. As such, financial markets are highly volatile due to the strong impact of announcements and projections linked to the outbreak.
It’s likely that we will see significant drops on the stock market every time a major announcement is made, whether new numbers about cases are released or new unemployment numbers come out.
It’s important to keep in mind that the market has been bouncing back consistently after each drop. This trend will likely continue as the effects of the stimulus package roll out.
It’s undeniable that the stock market is extremely volatile and will remain highly unpredictable and speculative until the outbreak is over. In these times of uncertainty, businesses should prioritize financial planning. HJR Global can help you assess your financial situation and planning for the future. Contact us today to learn more.