It’s been a very turbulent few months for the global economy, with nations in recession, unemployment rising and a pandemic running rampant – so why is Wall St winning?
A Global sell-off…
Across February and March global share markets fell roughly 30%.
Investors sold out of their positions due to concerns regarding economic shutdowns resulting from pandemic related lockdowns.
… Followed by a Market bounce
In April, though, share markets rebounded significantly, rising over 15%.
This marked April as the best month for the stock market since 1988 in Australia, and 1987 in the US.
A time of economic confusion
We expect the economy and the share market to usually perform in tandem, like two peas in a pod.
It is after all the earnings of companies that underpin the two.
In saying that, it is clear the global economy isn’t going too well, with many nations experiencing recessions.
So why are share markets performing so well?
Well, trying to perfectly understand the share market is a very difficult task, but we have a few ideas…
1. Government stimulus
Governments around the world announced huge stimulus packages in attempt to mitigate some of the effects of the pandemic. These were of record-breaking size, with over $3 trillion of stimulus announced in the US and $140 billion+ in Australia.
Why would this support share price increases?
These stimulus packages provide both people and businesses with money to spend. This increases business profits and provides investors more money to invest in shares: both of these being factors that increase share prices.
2. Booming technology companies
In the midst of the coronavirus, there have been certain industries that have benefited significantly. Most notably, we’ve seen tech companies boom.
With businesses having been required to work remotely, the demand for tech services has increased drastically. And as demand increases, so does their revenue, profit and, ultimately, their share price.
3. Investors ‘buying the dip’
As the pandemic-stricken sentiment began to take hold of the market, investors began to sell their share positions.
However, when the market began to reach it lows, investors began seeing buying opportunities – with all the cash they had from selling down, they began buying back in.
The effect of this is an increased demand for shares, and as demand rises, so will share prices.
So, there it is – why Wall St was winning! In truth, as we said earlier, these are only our estimates of what may have driven Wall St’s strong performance over April, and there likely exists many other factors at play. If you’re interested in learning more about the stock market so that you can begin to form your own views, we suggest reading these: