The crowds of people that are currently panic-buying toilet paper at your local 7/11 aren’t the only ones that are spooked by the COVID-19 outbreak. Wall Street investors and traders across the world are feeling the anxiety too, as evidenced by the recently sustained battering that the US economy has been subjected to throughout March 2020.
Although worse days are likely still to come, the US stock markets have already seen their worst days since the 2008 Financial crisis, with as much as 17% of the value of the major stock indices being wiped out in the first two weeks of March.
With global economic activity basically grinding to a halt until the worst of the contagion has passed, it is likely that the US financial markets are in for a bruising few months. Here’s the breakdown of how things are currently looking.
1. From Bullish to Bearish Overnight
Perhaps what makes recent financial developments so extraordinary is the unbelievable speed with which the situation has completely flipped. As recently as late February, pundits and market hawks were praising the US stock market for soaring to new heights in spite of mounting concerns over the virus, whilst the White House was publishing giddy press releases praising the markets for continuing to smash growth records.
However, once it became apparent that the entire global economic system was essentially going to be put on hiatus, things flipped rapidly.
Almost every trading day throughout the second week of March saw near-record losses, which continue despite the Federal Reserve stepping in and injecting more than $1.5 trillion into the market – a move that only saw markets rally for a few minutes before nosediving again. While the stock market is not representative of the economy as a whole, it’s clear that we’re in for a long bear market.
2. Foreign Exchange Markets in Disarray
Another major way that the virus has impacted the financial system can be seen within foreign exchange (forex) markets. Foreign exchange, which involves trillions of dollars worth of different currency pairs being traded on a daily basis, is especially sensitive to global economic downturns, but not in the way that some might think.
Rather than the US Dollar’s value relative to other currencies sinking the same way that the stock market has, its value has actually risen substantially since the start of the outbreak. This is partly because the dollar is the world’s reserve currency, and is often seen as a safe bet for investors and traders, meaning that its value tends to rise in times of crisis.
It is for this reason that qualified forex brokers in the USA, who are licensed to help customers trade dollars for other currencies, are currently seeing their workload skyrocket. Major currencies such as the Euro, British Pound, Chinese Yuan, and Japanese Yen are all down, while the US dollar is rising steadily.
3. Winners & Losers
When discussing any kind of protracted financial market turmoil, there are always winners and losers. Just as the US Dollar has seen gains over other major global currencies, certain industries have benefitted economically from the current crisis. Some of the more obvious winners include large companies that manufacture hand sanitizer and disinfectant products, which have seen their share values skyrocket since the outbreak of the virus.
Major health and life insurance companies, remote working platform providers, major e-commerce retailers such as Amazon, and pharmaceutical companies have all seen their value climb as a result of the coronavirus. On the other hand, there are entire industries currently facing decimation as a result. The hotel and travel industries were the first major casualties, with many of the largest industry players quickly falling into administration.
The next worst affected so far has been the wider hospitality industry, which includes restaurants, bars, venues, and galleries. With the US government’s rules on social distancing, many of these businesses, which already tend to have razor-thin margins, have become economically unviable due to customers staying away. In addition, manufacturing, transport, food, and the gym sector are all facing an incredibly tough few months ahead.
4. A Long Road Ahead
It is becoming abundantly clear that this is no mere blip on the economic radar. The turmoil we are now seeing in financial markets is of historic proportions, and unparalleled amounts of wealth and value are being lost. There will undoubtedly be a lively recovery once all of this is over, but businesses and markets will have to weather a tough few months before that day arrives.
Moreover, even if the recovery is strong, instantaneous, and arrives soon, the damage that has already been caused will have a long-lasting effect that may fundamentally change how financial markets operate in the future. While we can’t predict exactly how the next few months will play out, it is fair to say that they will be anything but dull.
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