A Slow Return To Market Health

june 22, 2020

Source: Photo by Austin Distel on Unsplash

It’s been a rough few months around the world as markets have slowed to a near standstill, forcing both people and corporations into tough times. With all the uncertainty, many people were left without work and no clear idea of what was to come. But as the health crisis has improved a bit, so has the resulting financial crisis. As the economy normalizes, people have less time for leisure activities such as online slots and home DIY projects. North American markets reflected this with a surge, indicating we’re on the road to recovery.

Due to health concerns, many businesses had to close their doors for months, while essential businesses were flooded with demand. However, when forced to stay at home, many of us spent more than usual on online purchases, leisure activities, home improvements and meal delivery. Overall, though, this spring was a slow time economically as people lost paychecks, prepared for an uncertain future, or were simply unable to patronize many of their favorite businesses.

Financial and Employment Uncertainty

One of the toughest parts of the past few months for many people has been their uncertainty around employment. Layoffs, business closures, and the pressures of working from home put many people in a state of uneasiness with no clear end in sight.

Layoffs hit the entertainment and hospitality sectors particularly hard as people stayed home instead of traveling for leisure or going out. Canadian casinos had to lay off large number of employees as a result of not being able to operate as normal. While online casinos weren’t forced to close, they also feared for lost business with players spending less on leisure activities. Additionally, regulations limited the types of advertising casinos were allowed to engage in, which in these uncertain times was more of a hit to growth than ever.

Other industries were affected too, with some having to halt production entirely. Office workers found themselves working from home in many situations, which drastically changed workplace norms. Small business owners were particularly hard hit, especially new start-ups and fledgling ventures that didn’t have a solid market share or savings to fall back on. While some folks focused on shopping local and supporting small businesses, online superstores were overwhelmed with orders as people changed their shopping habits to cope with the situation, taking business away from other stores.

How It Affected the Market

As the crisis began in North America this March, there was a swift response from the stock market. It became more volatile than ever, with Wall Street even triggering “circuit breakers” several time. These breakers, which block all transactions for a short period of time, are put in place to prevent panicked trading. And people were definitely panicking, selling stocks out of fear that their value would soon plummet.

Their panic wasn’t unfounded, because the market did see a vast downturn. Many people watched their stocks and other investments quickly lose value. The Dow Jones had two of its largest single-day drops ever this March. With a market that was more volatile than most of us have ever seen, the economy took a big hit, adding a financial crisis on top of the health crisis.

The longer the economic shutdown and instability continued, the deeper the troubles got. Many people continued to go without a paycheck, and Mercatus estimated that every month the partial shutdown continued would decrease the United States’ GDP by 5%. Other countries saw similar declines, with the World Trade Organization estimated global trade would be cut by as much as 32% this year.

How Businesses Have Coped

These difficulties in the stock market probably won’t be completely overcome any time too soon. As with any financial crisis, this one will likely continue to affect people for years to come.

Big businesses losing money means they’ll be hiring fewer employees and spending less money on expansion, making the job market suffer. When banks find themselves in a bad financial situation, they are less likely to offer favorable loan rates, making interest charges and conditions worse for individuals and businesses alike.

Every industry has had to cope in its own particular way. Some have adapted, with new product lines or extending services to include delivery. Online businesses are more popular than they’ve ever been in the 30 years of the internet’s life.

Still, online companies have had to fight for limited buying power among people in a state of financial distress, making advertising and SEO more important than ever, particularly for new or small businesses.

Some businesses have received government assistance, from programs like the United States’ economic stimulus, but hardly any sector has been unaffected.

Source: Photo by Mark Finn on Unsplash

The End is in Sight

The world is slowly getting back on its feet after the crisis, though, and the stock market is beginning to respond. All across North America, stocks are trending back up, which has been a huge relief for traders and investors.

Experts have generally predicted a slow bounce back from the crisis. The US Federal Reserve chairman had warned that the country’s recovery would take a long time and would even have periods of ebb and flow. In spite of that, the investing community has taken the Reserve’s comments pretty positively, since they seem to indicate that things are on the rise. You can already see it in the numbers, with the S&P/TSX composite index more consistently closing strong, and the Dow Jones industrial average and Nasdaq composite crawling upwards, too.

Overall, there was a record-breaking 17.7% retail sales increase from April to May, which was over twice what economists had predicted for this time period. This is mostly thanks to increased spending from consumers as stores begin to reopen in some places. Also, as people’s uncertainty around their personal finance eases, they’re more likely to spend money, which could account for some of the progress.

One big change helping the market has been in the oil sector, which has always played a huge role in the economy. Oil prices, which have increased by US $1.26 per barrel for July, don’t just affect people at the pump who might see slightly higher prices for the summer. Since oil is such a huge player in the economy, it can drive the market as a whole.

The recent increase in TSX’s performance is thanks to the energy sector, with an upward trend that can be linked to crude oil prices rising in response to new forecasts from the International Energy Agency. Other energy shares have performed well too, like Secure Energy Services Inc. and Cenovus Energy Inc. The price of natural gas, however, has slightly decreased. With decreased travel demands because of the pandemic, demand for jet fuel from air carriers has dwindled. But as flights starts returning to normal, the demand should increase back to more normal levels, helping to even things out over all.

As in many times of crisis, gold has been doing pretty well, with the August gold contract rising a fair amount. Gold is generally thought of as a safe and steady investment, leading a lot of people to turn to it in hard times. It’s generally less likely to plummet than many other investments, though it certainly still fluctuates.

There was another boost in risk assets because of talk about an infrastructure package of nearly $1 trillion in the United States, as proposed by the Trump administration. This could create jobs and pump money into lots of businesses doing work as part of the project.

The healthcare sector is also, perhaps unsurprisingly, faring well. Bausch Health Companies Inc. and their shareholders enjoyed an 8.8 per cent surge this June. We may also see some action related to drug trials, as a British study just found that the generic steroid dexamethasone can help reduce death rates by as much as a third when used in hospitalized virus patients. This would not only be great news for the crisis overall, as it could help reduce deaths, but could have a positive impact on the stock market as well.

Source: Photo by Aditya Vyas on Unsplash

What the Future Holds

There is no doubt that the crisis is long from over. Health officials have warned of the dangers of a second wave of infections, particularly as people let their guard down and begin returning to their normal day-to-day activities. China was seeming to emerge from danger, but Beijing had to close schools once more because of a resurgence in cases. And in Texas, where lockdown orders have been rolled back, there was an 11% jump in hospitalizations for the virus over a span of only 24 hours. This should be taken as a sobering warning of what can happen if restrictions are called off too quickly.

The uncertainty about both health outcomes and the effects on the stop market are still looming over many investors’ heads. The market is still generally cautious, but it’s been somewhat reassuring looking at the numbers as they come in.

On an individual basis, many people are still hurting. It takes time to recover from lost paychecks and increased financial stress brought on by layoffs and business closures. While economic stimulus payments helped many people, they only made a slight dent in the overall problems. Rather than spending the stimulus money to boost the economy by spending it at businesses that had remained open, many people were forced to use their funds as more of an economic lifeline due to financial difficulties.

Still, the United States is also considering a second wave of stimulus payments, according to the Federal Reserve. This would have to come from Congress and could provide support for those who’ve lost their jobs or stimulus money for businesses. The chairman cited how the previous stimulus had a positive impact on consumer spending. The US Federal Reserve has already approved a purchase of corporate bonds as part of a stimulus plan.

As always, it’s unclear how things will ultimately pan out. While day-to-day developments in the disease’s trajectory can sway the market one way or the other, a full recovery is still a ways off. Some people are still bracing themselves for a long period of tightening their budgets, while others are more optimistic that things will turn around soon. Most experts agree that until there is a clear improvement in treatment options or a vaccine for the virus, things will remain rocky.

It’s been particularly tough to predict how things will work out because the situation is so unprecedented. Previous health crises have not had such a wide impact. Particularly because information travels so quickly now, the market can be more volatile as investors make decisions based on constantly evolving information.

It is probably safe to say that the market will take some time to recover and will likely continue to be somewhat volatile as the situation continues to unfold. Even the most optimistic investors are keeping an eye on the news to be ready to react in case of any sudden turns.

If you prefer to play in an online casino over playing the market, you might not usually pay much attention to stock news. However, such big changes in the economy affect everyone as market performance has a ripple effect in consumer prices and the job market. We’ll all be keeping watch on the latest news (and our online keno games) and hope for a quick recovery and return to normal.

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