Stock market experiences extreme volatility with COVID-19 uncertainties

Courtesy+of+Wikimedia+Commons

Courtesy of Wikimedia Commons

Farah Javed

This staggering drop comes even after the Federal Reserve not only lowered interest rates but also approved a $700 billion asset purchase package. In an attempt to get more money pumped into the economy by making markets have easier access to it, rates were slashed down, close to zero. 

In addition, “It also expanded the range of assets that it is prepared to buy and announced a joint operation with the US Treasury to provide direct support to businesses and consumers. The Fed will provide up to $300bn of new financing to firms and households, with the Treasury providing $30bn to cover any losses,” according to The Guardian.

The stock market plummet embodies increasing fears and concerns of investors. Headlines upon headlines discuss how this is the worst drop since Black Monday, the stock market crash in 2008, or even could be inching towards a modern-day Great Depression. In fact, upon hearing being briefed about the coronavirus, senators and law enforces quickly liquidated their stocks.

With a stimulus package yet to be approved by the Senate, the drop in the stock market could be indicative of a potential recession. Though asked repeatedly by journalists and in press conferences, President Donald Trump has yet to confirm whether a recession is imminent.

The increased unemployment rate is an indicator that gross domestic product will decline. In fact, one proponent of an upcoming recession is the banking industry. This includes banks such as Goldman Sachs Group Inc., Bank of America Corp. and Deutsche Bank AG. 

“The anticipated declines would substantially exceed anything previously recorded going back to at least World War II,” the bank wrote in a note on March 18. “We cannot stress enough the degree of uncertainty surrounding these projections. These are truly unprecedented events with no adequate historical example with which to precisely anchor our forecast,” said an economist from Deutsche Bank.

As the economy worsens, the United States continues to lose profit in some of its biggest industries. One industry particularly hit is the entertainment one, a huge source of wealth for the United States.

With million-dollar concerts, sporting events and festivals like South by Southwest being cancelled, a supply of money that usually goes into the economy is not. 

Even more injuring is that nonessential businesses have been forced closed to close. Places like bars, dine in restaurants, movie theaters, museums and shopping malls have been forced to close and send home millions of workers.

It is important to note that this economic crisis is not like any one that has occurred in the United States. Though the government has forced all economic activity to freeze in order to slow down the spread of the virus, this also means that there is a drastic decrease in goods and services provided. 

Economists believe that this is not the proper course of action. Economist Steve Hamilton from George Washington University believes the government should focus its attention on strengthening small businesses instead of closing them. 

“[Hamilton] has been one of the loudest public voices calling for aggressive assistance to small businesses, and Stan Veuger of the American Enterprise Institute, want banks to offer loans to cover lost revenues for small businesses — and for the federal government to forgive the loans if the companies don’t lay off workers, ” said The New York Times

Other economists agree with Hamilton on the idea that businesses should not be punished for the government’s delayed and haphazard response to the pandemic. 

As investors remain panicked and anxious with the stock market drop,  these economists believe that focusing on small businesses and industries that cannot function for long without customers, like the aviation industry, will serve to boost the economy.

Regardless of whether the government implements these ideas or not, it is clear that the Dow drop is a premonition towards a recession.