The madness of the stock market

by José Ricardo about a month ago in stocks

Why the stock market has been so well in the middle of the pandemic

The madness of the stock market

There have been many industries that have been enormously hit by the socio-economic effects that this pandemic has brought, but surprisingly, the stock market has been able to hover around historical performance peaks. How is this possible?

From the end of February to the end of March, there were fateful days for the stock market, and therefore, for all those investors, both institutional and private, who had their money invested in individual stocks, mutual funds, ETFs, and the many options that can be chosen to invest in the stock market.

During that period of time, the S&P 500 (an index that is responsible for showing the performance of the main 500 companies in the United States) suffered a fall of almost a thousand points, something totally historical. Recall that in those days, the virus began to become a pandemic, and what previously affected only one region, and then one continent, spread throughout the world, and panic took hold of the whole world, something that didn’t leave investors aside, who began to sell their shares, because the fear of the unknown caused a feeling of enormous nervousness, causing falls in the market historically.

One of the industries that has been most affected is the airlines. This is due to the fact that air traffic has been reduced in a massive way, mainly caused by the numerous border restrictions that countries began to take in response to the pandemic. Many of them (some of historical caliber) had to file for bankruptcy, prompting the holders of those shares to desperately sell every one of the shares of that industry, even of companies that before the pandemic, were totally solid. Even the best investor the universe has ever had, and we're talking about Warren Buffett, asked his company Berkshire Hathaway to sell some of his airline stocks.

However, we must remember that the main stock markets (such as NASDAQ and NYSE) are made up of many technology companies such as Amazon, Google, Netflix, Facebook and Twitter, companies that since the beginning of the pandemic have seen their shares increase more and more of value. Why is this happening? This happens because thanks to the number of people who had to start working remotely (home office), the number of users on each of these digital platforms tripled, and therefore investors have turned all their confidence in the sector technological.

In the same way, in the middle of all that, other companies arose that through different methods and mainly because of the service they offer, which allows their users greater comfort when working, have gained a lot of ground among minds of consumers, for which, the price of their shares has increased massively. The best known case is that of the digital platform "Zoom", a platform that emerged as an alternative to hold digital conferences, and which has made it possible to give online classes to a large group of people at the same time, business conferences, or simply a social gathering digitally with many people. Earlier this year, a single share in Zoom had a cost of $68. Today, Zoom shares cost more than five hundred dollars.

In summary, the stock market took a sudden hit in March, because it is very difficult, after having experienced crises like those of 2000 and 2008, for investors not to panic at world events like this. However, the stock market, driven largely by companies in the technology sector, has managed to recover, and even show historical peaks in performance. And in the same way, let's remember what Wareen Buffett always tells us about the stock market: "The best options to invest are found during recessions" ...

stocks
José Ricardo
José Ricardo
José Ricardo

ENTREPRENEURSHIP | PERSONAL FINANCE | INVESTING

See all posts by José Ricardo