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How Covid-19 Affects the Stock Market: An Analysis

Michael Fallon

Corporations publicly traded on the New York Stock Exchange have been quite volatile during the Covid-19 pandemic, reaching low-points and then a significant recovery within just a few months. As pharmaceutical companies rush to be the first to develop a safe and effective vaccine for the novel coronavirus, daily life and activities across the world have been halted or greatly modified. As Covid-19-induced lockdowns took place across the nation in mid-March of 2020, the stock market plunged in an event known as the Coronavirus Crash. The sudden fall was the fastest in global stock history, and one of the most devastating economic crises in the United States. 

Between March 4 and March 11 of 2020, the S&P 500 ETF, a stock market index that measures the stock performance of 500 large companies, fell 9.5 percent, the steepest one-day fall since 1987. As stocks plummeted, unemployment rates skyrocketed, as the national total unemployment rate in April was up 10.2 percentage points since March at 14.7 percent. Massachusetts’ April total unemployment rate was up 12.3 percentage points since March at 15.1 percent. Businesses were forced to shut down or greatly alter their day-to-day operations, significantly reducing revenue. 

Consequently, layoffs were inevitable. Gyms closed, the few restaurants that remained open could only provide takeout, hospitals canceled non-life threatening procedures, and most non-essential employees got used to working from the couch instead of their office. Businesses across all industries struggled with the sudden revenue loss – pandemics are rarely accounted for in annual company revenue projections. Small businesses – struggling to generate revenue – anticipated financial relief grants and loans from the government throughout the early months of the pandemic. These eventually came, but many speculate more government money will be necessary to survive the remaining months.

Throughout the summer, city and state governments grappled with the reopening processes, giving hope to companies that were destined for further hardship had lockdowns continued to be in effect. As corporations were enabled to conduct business, the stock market had emulated a V-shaped recovery

Some industries in particular thrived during the early months of the summer, including pharmaceutical, technology, and cloud computing companies. As the world begins to acclimate to these unprecedented times, video communication, online retail, and cloud storage companies dominate the market.

As a vaccine draws closer to implementation, it will be worth watching these “pandemic winners.” Are these companies dependent on the pandemic lifestyle for continued success? 

S&P 500 ETF, as of November 23, 2020, courtesy of Macrotrends.net 2020

The stock market is currently far from stable, as pressing data and news are being reported on a daily basis – compounded with an exceptionally volatile election season. Throughout November, positive research data from multiple pharmaceutical companies had been released in hope for an effective vaccine. Pfizer and BioNTech, two collaborating pharmaceutical and biotechnology companies, concluded their Phase 3 study for their Covid-19 vaccine, reporting it to be 95 percent effective. Following Pfizer and BioNTech results, Moderna, another leading biotechnology company, reported their developed vaccine to be 94.5 percent effective. These reports caused Moderna stock to rise 27 percent in the last month, but Pfizer only rose by 7 percent. One explanation for this difference: Pfizer’s vaccine requires fast shipment and storage at -94 degrees fahrenheit, while a standard refrigerator is cold enough to preserve Moderna’s vaccine for up to 30 days. The determining factor for success involves logistics – whoever can deliver these vaccines across the world stands to be the next big “winner.”

Although the stock market remains volatile, it has recovered greatly since the beginning of the Covid-19 pandemic. The tech industry has prospered the most, as Nasdaq, an index fund that measures the performance of the tech industry, has recovered beyond pre-pandemic levels. That being said, there are also many industries that have seen drastic increases in their percentages. 

It has been a year of ups and downs, and there is still the question of when it will be stable again. There are industries still yet to recover, including the airline, hotel, restaurant, and cruise line industry, to name a few. Investors are cautious, as this is a time where the stock market is quite unpredictable. However, smart and fortuitous investments could generate a substantial return on investment. We are not out of the woods – numerous factors could lead to a slowed recovery, or even another decline. In the coming months, the market should be watched closely, as a possible vaccine could initiate a return back to normal, and become a great year for publicly traded companies.

About The Author: Michael Fallon is a sophomore at Merrimack College, studying Business Administration with a concentration in Accounting. He is a member of the Accounting Club, Promise Student Advisory Board, Head Chair of Communications in Kappa Sigma Fraternity, and a First Year Experience Mentor for the Promise Program. Please send comments and feedback at fallonmb@merrimack.edu.

Fallon is not a financial advisor, and any sentiments conveyed in this article should not be considered investment advice.

Disclosure: The author of this article owns shares of Moderna and SPDR S&P 500 ETF.