Amidst the global pandemic that caught everyone by uncertainty, the world is under a crisis it hasn’t seen in decades and experiencing an economic recession that is affecting many people in the U.S. Despite taking the necessary precautions and modern medicine being a valuable asset, the economy is still the majority monopoly since every crisis is linked to the market crash, mutual funds, fixed deposits, and overall assets like land free falling. The current problem is the overall market crash from S&P 500 and Dow dropped a whopping 3000 points, thus, crippling to an economy that is still recovering from the 2008 crash. These events from the current pandemic have brought upon fund operations like spreading money through stimulus checks and once the funds from the Federal government run out, there will be a true crisis at hand. This one pandemic is going to bring similar events in a modern stage once brought upon by the great depression. Right now, 40 million people lost their jobs due to companies laying them off, and 40% of those jobs are gone for good. In the great depression, there were 8 million jobs so the U.S is looking at double the amount of jobs lost with no plan to save them. These numbers are scary, and if the Fed keeps giving out unemployment benefits that disincentivize people who hold blue collar jobs to work, our economy could dangerously spike down and the lower end of the economic scale would be in serious jeopardy.
To transition, even with the economy being in a recession, the market is still where it was before this economic collapse, which begs the question; why is the market so much higher than the economy? Well, when people talk about the market they either talk about the Dow or S&P 500. What’s fortunate/unfortunate about the crisis is that it affects different companies differently. The more dominant, large cap, stronger balance sheet companies are colossal beneficiaries of this crisis. However, the market does not reflect small scale, private levered businesses that don’t have access to capital and don’t have the same dominance on the public market. If we take Amazon for example, which is a huge component of the market, it’s up 45% after the pandemic hit and approaching almost 10% of the espy index. Furthermore, businesses like Facebook and Google are also long term beneficiaries so they ultimately balance out the averages, which is why even though the market still looks the same there were many companies that greatly benefited from this crisis, and others that had to rely on the fed. The value of a renowned business is the present value of cash it generates over life, so even if they are disrupted in the short term, the long term value would be higher, thus, the stock market is only a snapshot of the entire economy. If the market had an index of smaller businesses and private companies, the market would be down 60-70%, so the averages of the beneficiaries really balance it out, therefore, the market does not have a direct correlation to how the economy is doing.
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