Since the first documented market crash in 1637, there have been hundreds of market crashes alike, ranging from tulip markets to oil markets. In more recent times, significant market crashes include ‘The Great Depression’ (1929), The ‘Dot-Com Burst’ (2000), and ‘The Great Recession’ (2008).
This year, the COVID-19 pandemic has caused the global economy to operate at a fraction of its usual capacity, which has led to numerous markets crashing.
The stock market suffered a monumental crash in March 2020, in what was the largest stock market crash since ‘The Great Recession’ in 2008. Stocks and share prices plummeted across the world, with the largest companies in the world such as Amazon (AMZN), Apple (AAPL) and Google (GOOG) also being victims of considerable price collapses. The economic consequences that followed the market crash, such as recessions in many countries have seen 2020 labelled as the year of ‘The COVID-19 Recession’.
The Dow Jones Industrial Average (DJIA) was established in 1896 and was designed to serve as a proxy for the health of the U.S economy. The DJIA is a stock market index that tracks 30 large, publicly owned blue-chip companies trading on the New York Stock Exchange (NYSE) and the NASDAQ. In February 2020, the Dow Jones Industrial Average was at the highest level in its 124-year history, with nearly 30000 points. By 23 March 2020, the DJIA had tanked due to low investor confidence, stemming from the COVID-19 pandemic, and closed at 18591.93 points. This represented a 37% decrease from 12 February 2020, where the DJIA closed at 29551.42 points.
On 16 March 2020, the DJIA hit a new record by losing 2997.10 points to close at 20188.52. This 12.93% plunge was larger than the October 1929 Black Monday slide of 12.82%, which held the previous record for the biggest one-day point loss in Dow Jones History.
The 2020 market crash and the consequent recessions in numerous countries are well documented, but how have markets responded to, and recovered from the collapse?
The Dow Jones Industrial Average has gradually recovered over the course of the last 5 months, closing at 27433.48 on 7 August 2020. Within a month of the crash, the DJIA managed to return to 23000 points, representing a surprisingly rapid recovery. This recovery matched that of most stocks and shares, with price charts showing an almost identical pattern in the months after the crash.
However, other markets such as the oil market have not managed to recover as fast. BP share prices fell by 51.38% between 4 March – 18 March. As of 7 August 2020, BP shares are trading $22.98, which is still 30% less than the 4th March price of $33.14.
As noted in a previous article, some sectors have emerged as ‘winners’ from the global pandemic, which makes it unsurprising that some companies have avoided the stock market crash completely. A company which epitomises this sentiment is Amazon (AMZN). Between 24 February 2020 ($2009.29) and 24 April 2020 ($2410.22), Amazon share prices increased by 19.95%. This was due to the majority of the global population shifting to online shopping for all essential and non-essential items, and Amazon’s capabilities to provide same-day and next-day deliveries. The global shipping and distribution infrastructure of Amazon allowed them to thrive from the changes in consumer habits. As site traffic increased, the number of orders increased, causing revenues, profits and investor confidence to skyrocket during a period where other companies’ share prices were plummeting.
The cryptocurrency market also experienced a market crash in March, but nevertheless managed to recover at an exponential rate in the following months. The market leader, Bitcoin, fell by 49.93% between February and March 2020; however, then managed to recover to a 2020 high price of $11744.91 on 9 August 2020. Other cryptocurrencies such as Cardano (ADA), ChainLink (LINK), Ethereum (ETH) and Monero (XMR) had market cap increases of 200%, 100%, 73% and 31% respectively in Q2 2020 alone.
More traditional markets, such as the gold market have recovered to all-time highs. Between February and March 2020, the price of gold (per ounce) decreased by 10%, which seems insignificant when compared to other markets. However, in August 2020, the price of gold reached an all-time high, breaking the $2000 mark when doing so. Such a monumental occasion for a historic market occurring in 2020 epitomises the unpredictable nature of markets.
Despite recessions in countries such as Canada, Italy, Mexico, Russia and the United States of America, the stock market has generally managed to recover, with most markets returning to pre-COVID figures. Some markets including the tourism market and the rental property market anticipate recoveries once lockdown and travel restriction measures are eased. Many experts predicted a second market crash in 2020, and despite having Q3 and Q4 2020 to go, the stock market seems to have recovered well, with many companies adapting to the changes in trends. The impacts of the market crash have not been as severe as once thought, with investor confidence back on the rise, and many new speculators entering markets.
Further recovery from the 2020 market crash is dependent on how governments and authorities boost their respective economies. Schemes such as the ‘Eat Out to Help Out’ scheme in the UK will potentially boost revenues and profits for the hospitality industry, which suffered due to social distancing measures which were imposed in March. Numerous sectors across different countries may need similar schemes, government subsidies and grants to return to pre-COVID levels of revenue and profit. These will increase total consumption, which will raise aggregate demand and increase GDP’s. How governments respond to the global pandemic will play a crucial role in the next few months, and it will be covered in detail during Q4 2020 here at The Corporate Feed.