The pandemic took a big hit on the global economy, causing major volatility in financial markets. As countries reopen their economies following lockdowns, the markets are experiencing continued volatility. The uncertainty of what lies ahead has investors on edge, fearing a clunky recovery that might easily tip the economy back into recession.
Investors have been forced to deal with erratic stock prices and swift changes in market valuation, with mixed news around the pandemic only adding fuel to the fire. It’s a continuation of the turbulence seen earlier this year, which may last longer than anticipated due to the potential for heightened geopolitical risks and ongoing concerns around international trade.
The market’s resilience has been impressive over the past few months, with stocks rapidly climbing since the March lows. Though recent news concerning alarming spikes in Covid-19 cases had investors scrambling once more, the fear of a prolonged recession has sparked immense market volatility.
The Dow Jones Industrial Average (DJIA), S&P 500, and Nasdaq have seen swift changes in valuation throughout June and July, with technology stocks leading the way with gains. Meanwhile, energy, travel, and leisure shares have seen significant downsides, causing investors to sell their stock aggressively.
The US economic recovery is highly dependent on the progression of the pandemic. The latest surge will increase the probability of extended lockdowns and other types of restrictions, which will drag on the recovery process. Fed Reserve chairman Jerome Powell has declared that the US economy must remain open, and it can do so appropriately with mass testing, tracing, and mask-wearing.
Investors are focused on stimulus packages and governmental response to ensure sustainability in business reimbursements and local economies recovery. Inarguably, stimulus packages have provided much-needed support to American businesses and the country’s economy. Despite this, consensus among many investors is that additional assistance will be necessary.
At the same time, geopolitical turmoil is an abundant risk, which may aggravate even more volatility and fearfulness in the market. With the US preparing for yet another election season and international trade volatility on the horizon, it’s essential for investors to tread lightly.
The reality is that the markets will continue to experience unprecedented uncertainty until a vaccine or a workable cure is developed. As we slowly move forward, investors must evaluate their risk tolerance and follow financial pundits closely, considering recent market developments, governmental policies, and pandemic news.
