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Effect of the pandemic on US and global stock markets during Covid-19

Effect of the pandemic on US and global stock markets during Covid-19.

I’m studying for my Writing class and need an explanation.

The major project in this class is a “Coronavirus Disaster Kit.” How global supply chains and global financial markets have been affected by the coronavirus pandemic. We would also like to analyze how specific commodities have reacted to the pandemic, especially oil which has seen prices turn negative for the first time in history as demand has dried up.

The topic is : Effect of the pandemic on US and global stock markets

-Please follow the annotated bibliography to complete as a newspaper essay (800-1200 words)

https://insight.kellogg.northwestern.edu/article/w…

This is an article written by several economics researchers at Northwestern University in Evanston, Illinois. The goal of the study was to determine how the stock market’s response to COVID-19 compares to previous epidemics (or pandemics) since the late 19th century. The researchers found that COVID-19 has affected the stock market more profoundly than any previous disease outbreak. One of their most important data points for comparison is the so-called “Spanish Flu.”

In the last section of the article, the researchers consider four possible explanations of why the COVID-19 pandemic has caused greater market volatility than any previous outbreak. The four explanations are:

  1. COVID-19 is more contagious than other disease outbreaks and it has one of the highest mortality rates of recent outbreaks. However, the researchers consider this to have some explanatory power, but not very much. They think that if this were the sole explanation, then the Spanish Flu would have caused much more market volatility than it did.
  2. With modern communication and technology, information about pandemics and diseases spreads much more quickly than at any point before. The fast spread of information causes people’s behavior on the markets to change at a faster rate, and in times of crisis and uncertainty, this leads to more volatile behavior. Again, the researchers believe that there is probably something true about this explanation, but it does not tell the whole story.
  3. Today’s economy is more globally interconnected than any previous configuration of the economy. With the economy’s dependence on the service industry, travel, international shipping, etc., the pandemic has a greater effect on the overall economy than previous epidemics did. However, the researchers once again find that this explanation is incomplete.
  4. Finally, a fourth explanation is that our greater knowledge of diseases and disease control has led to much stricter public health policies that have prevented people from going to work or from traveling within or out of the country. This has led to decreased production and output, decreased trade, and decreased consumer spending, all of which are metrics that correspond to market volatility. The researchers think this is the best explanation of the four.

https://www.vox.com/covid-19-coronavirus-economy-r…

This is an article that attempts to explain why there is such a dramatic gap between the stock market’s performance and the economy’s performance. In contrast to the Northwestern article above, this article was written in early May, when the stock market was doing relatively well and had recovered significantly from its losses in March and April. However, the stock market was doing well at the same time as the global economy seemed to be going into recession. In the US, 30 million people had filed unemployment claims by early May, and the economy had shrunk by almost 5%. So it is curious that the economy was doing so poorly while stock markets were doing relatively well. Based on the Northwestern article’s fourth explanation, this shouldn’t have been happening, since their explanation said that markets were doing poorly as a response to the shrinking of the economy.

Vox’s main explanation for this gap is that federal governments and institutions like the Federal Reserve were artificially insulating the stock market from the threats of an economy in recession. They have pumped billions of dollars into markets, which has allowed investors to continue to buy stocks. This has improved the stock market’s numbers.

Another potential reason is that some major companies, especially tech companies like Apple, Facebook, and Google, have continued to report good earnings data during the Coronavirus crisis. Since the stock market reflects the performance of large companies like these more so than it does small companies, this makes the markets stronger when those large companies perform well.

However, Vox warns that if this increase in the stock markets is overly optimistic, then they will experience major losses if a major company or hedge fund goes under. If that happens, it will have seriously negative consequences on the entire economy, including stock market investors.

Effect of the pandemic on US and global stock markets during Covid-19