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The Impact of COVID-19 Pandemic on Stock Markets
The World Health Organization (WHO) designated the coronavirus, which the world first learned about in December 2019, as a COVID-19 pandemic on March 11, 2020. It affected the lives of millions of people worldwide, as seen by the sheer number of cases and fatalities. To combat the unusual downturn in economic activity and employment losses, nations reacted by imparting complete lockdown, enforcing tight quarantine regulations, imposing travel bans, and endorsing incentive packages.
Global Stock Markets Scenario During the Worldwide Pandemic
The worldwide financial markets have been impacted by the COVID-19 epidemic. Significant volatility in stock markets and other markets for hazardous assets has been brought on by ongoing changes to economic growth projections, increased risk aversion, and extreme uncertainty over the pandemic’s future course. The financial markets started a phase of risk aversion around the end of February 2020, with sharply rising market volatility.
Within weeks, the stock market lost roughly 30% of its value, and the sell-off accelerated more quickly than the 2008 global financial crisis did. In general, the COVID-19 epidemic has had a negative impact on stock markets.
The “Great Lockdown” moniker for the COVID-19 pandemic refers to the stringent containment measures put in place as a result of the pandemic outbreak. Due to the COVID-19 epidemic, a number of international organizations revised their economic estimates downward. The international monetary fund (IMF) reduced its worldwide growth forecast for 2020 to -3%, a decrease of 6.3% from early year projections.
Effect of COVID-19 Transmission to Stock Markets
Multiple avenues might be the cause to spread the pandemic’s impacts to stock markets. The spread of infectious illnesses caused a drop in economic activity and posed a serious problem for firm profitability and continuity in dire circumstances like lockdown.
Additionally, due to the high levels of market interconnection brought on by globalization and financial integration, a pandemic-induced economic and financial shock in one nation spreads quickly to others.
The pandemic has been particularly hard on the stock markets. On the one hand, the COVID-19 pandemic outbreak has sped up the spread of pessimism among international investors and aided in the herding effect, leading to successive stock market declines and a vicious cycle; on the other hand, the isolation policy brought on by the pandemic has had an impact on the economy from both consumption and output, which has affected the trend and expectation of the stock market and imposed a serious negative effect on the stock market rebound.
Combating the Black Swan Effect
To stop the virus from spreading further, many nations implemented stringent lockdowns and stopped all significant economic activity. This ultimately had a negative impact on financial markets, causing the unavoidable market crash in March 2020. According to the sort of incident, stocks typically respond in a way that either investors or traders see as good or negative. Contrary to corporate events, black swan events like COVID-19 are uncommon, and very little research has been done to examine their effects.
Depending on how COVID-19 affected companies’ operations, different sectors’ stocks responded to it differently. For instance, in the S&P 1,500 sample, stocks in the natural gas, food, healthcare, and software sectors saw positive returns over time while shares in the petroleum, real estate, entertainment, and hospitality sectors saw sharp declines.
The stock markets are regarded as the leading indicator of any economy, and the capital markets constitute the core of any nation’s economy. The COVID-19 outbreak has negatively impacted the victims’ financial situations and presented a serious threat to the global economy and each country’s financial markets. Most global stock markets have experienced trillion-dollar losses, and as a result, international financial institutions have been obliged to reassess their growth projections for 2020 and the years beyond.
A Wide Perspective
The historic loss in the stock markets around the world has been recorded. The S&P 500 Index saw a typical decline of 35% on March 23, 2020, compared to the record high on February 18, 2020. The severity of this record-breaking decline quickly surpassed that of the 2008 financial crisis, Black Monday in 1987, and the Great Depression of October–November 1929.
On December 20th, 2019, the BSE SENSEX recorded its highest point total of 41,681.54. Due to the COVID-19 outbreak, the BSE SENSEX fell to 25,981 points on March 23, 2020, a decrease of 37.66%.
The Takeaway
The COVID-19 effect on the Indian stock market is known as a “black swan event,” which is the occurrence of a very unforeseen event that has a very negative outcome. The government’s lockdown strategy caused the manufacturers to lower both the size of their workforce and the level of production, which disrupted the supply chain.
Again, due to the general uncertainty experienced by humanity, people also restrict their consumption, which causes demand-side shock. Additionally, research has shown that the previous pandemic only had an impact on the supply chain. However, the supply chain and demand chain have also been impacted by the COVID-19 epidemic.