One Year of COVID: Where are the Markets Now?
Once the WHO declared COVID-19 a global pandemic on March 11, 2020, markets crashed, while investors panicked and sold everything they owned, fearing the unknown.
The unprecedented stimulus and the distribution of vaccines have saved the situation and eased the damage from this pandemic.
Stock markets are now back to breaking new records.
China was the first one to catch the virus and recover.
However, Europe is hit hard and its economy will continue to struggle for a while.
The US is back on the recovery track, and hopes about quicker-than-expected recovery are increasing.
In this environment, pay special attention to S&P 500, other stock indices, and the USD.
On March 11, 2020, everything changed after WHO declared Coronavirus a global pandemic, and what was new and strange to us then, has become our reality now.
Initially, markets collapsed and entered a bear trend.
Then, however, they returned to the green territory and recovered partially, with the ongoing unprecedented stimulus, the negative interest rates, and the rollout of vaccines in early 2021.
Let’s see what has changed after a year of this extraordinary event.
1. China is the First infected and the First to recover
Markets crashed in China in January 2020 before anywhere else, amid investors’ panic due to the Lockdown in Wuhan and the fast spread of the novel virus.
The Shanghai Composite Index fell 12% between mid-Feb and early February and then collapsed further in March with the rest of the world.
By July 2020, Chinese stocks had recouped all their losses since the start of the pandemic.
The MSCI Asia Pacific Index outperformed S&P 500 index.
UBS expects this upward performance to continue through 2021.
China is the only economy that expanded during 2020, according to IMF.
2. Europe is struggling on its road to recovery
As for Europe, it is one of the markets severely affected by the consequences of the pandemic.
It is expected to continue its suffering for a while.
Even vaccination didn’t provide the expected rush to the markets.
The performance of European stocks was below the recovery path seen in the US stocks.
That is due to several reasons, namely: the Eurozone and the UK leaning towards financial and energy stocks, which were hit hard in March and didn’t rebound strongly even after the vaccine distributions in November 2020.
The late stimulus, Brexit problems, government turmoil in Italy, and strict lockdowns in Spain, Italy, Germany, France, and the United Kingdom also exacerbated the damage.
3. The US is witnessing a recovery
As for the US economy, the two contradictions were there – positive and negative impacts, specific to each sector.
However, signs of improving economic conditions in the recent period have increased faster than expected, providing more support to the markets.
The S&P 500 has recovered from the pandemic’s losses and has reached 30 records so far.
How the Economy has changed in a year
A comparison between the performance of currencies and stock indices in March 2020 and March 2021
|Currency/Stock Indices||March 2020||March 2021|
|The Dow Jones Industrial Average||The index ended the longest bull market in the history of US stocks after entering a bear market for the first time in 11 years (a drop of more than 20% from the last peak). – March 12, 2020: Down by 9.9%, the biggest drop on record in a single day. it was the worst decline since the 1987 market crash, “Black Monday”. – March 16, 2020: A drop of more than 3,000 points, or 12.9%, to 20,188, exceeding the largest decline recorded on March 12.||The index closed 188 points higher, setting a new record for an all-time high during the day at 32,793. The Dow has risen in the year since March 12, 2020, about 7% so far.|
|The US Dollar Index||The index that measures the performance of the dollar against a basket of six major currencies traded at 96.7, as the Federal Reserve and the rest of the major central banks cut rates to below 0%.||The index stood at 91.6 levels as things got better. During the year since March 12, 2020, the dollar index has risen by 2%.|
|Oil||A drop of 8% to $31 a barrel, after collapsing 22% on March 9 due to the oil price war between Saudi Arabia and Russia.||The oil market rebounded strongly, reaching $65.6 a barrel, with the continued production cuts from OPEC+. Oil rose during the year since March 12, 2020, about 35%.|
|Gold||A drop of more than 4.5% to $1517, as investors sell gold to gain liquidity and cover losses. Then gold rose to its highest levels in history above $2000 during the pandemic as a safe-haven in times of crisis.||Currently, trading at $1,730 an ounce. Gold has fallen by -9.2% during the year since March 12, 2020.|
Finally, there is no doubt that fiscal and monetary stimulus is the biggest factor that helped change the situation from a year ago.
Once economies stabilize, central banks will start collecting this money from the markets so they won’t fall into the trap of hyperinflation.
Since we are waiting for a strong recovery in the second half of 2021, especially with the pandemic slowly receding and government support to the economies continue.