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The world is facing the terror of coronavirus which has dismantled several domains. The stock market all across the Globe is going down. The COVID-19 has impacted 210 countries, infecting 7,598,803 people worldwide with death rate mounting up to 423,868. With the emergence in Wuhan, Hubei province, China COVID-19 pandemic has turned out to be the greatest challenge that human civilization has ever faced since the 2nd world war. Proliferating in a rampant way to every corner of the globe, with no approved treatment or vaccine, it poses a big threat to the entire human population.

COVID-19 and economy

Apart from the massive loss of life due to this pandemic, COVID-19 has severely dismantled the global economy with developed and developing countries facing the threat of increasing unemployment. With the implementation of lockdown, several companies fell into the state of crisis and lack of productivity. Lockdown will directly impact the GDP of countries with an estimated reduction of 2% from annual GDP.

Credit:Rabobank,Macrobond

Acc. to the World Trade Organization(WTO), coronavirus will reduce world trade by a third. If compared, the repercussions of COVID-19 are daunting and more intimidating than the Great Depression of 1930. It’s only when countries act together that, we can expect a faster recovery than if each country acted alone.

Black swan event for stock market

The environment in the stock market across the globe is low-spirited. Black swan event is an uncertain event with unprecedented consequences and is characterized by extreme rarity and the impact of COVID-19 on the stock market is one such example.

stock market
credit: google image source

There are instances where stock market crashes have been accompanied by a sudden surge in recovery. 

  • During 1992 Indian Stock Market Scam, Sensex dipped by 53% and recovered by an unprecedented 127% within 1.5 years.
  • The 1997-1998 Asian financial crisis, which emerged in Thailand had severely impacted neighboring economies, facing a setback of 40% in four years. Strangely enough, it leaped with a recovery rate of 115% in one year.
  • It was during the “Tech Bubble” crash of 2000 that the Sensex dipped by 56% in 1.5 years. But, it emerged with a recovery rate of 138% in 2.4 years.

Regardless of the examples, it’s quite reasonable that the economic setback due to COVID-19 is unfathomable and will take a long time before it’s restored to its normal state.

The scuffle between Russia and Saudi Arabia over oil supply and prices is one example of international factors impacting the stock market. With a sudden surge in the price of oil by Russia, Saudi Arabia triggered a response in order to keep the oil price under moderation. 

sharemarket economy
Credit:Bloomberg;EIA

In this period of turmoil ,what can we learn from the stock market ?

During this period, we can learn about investor psychology and behavior. Such time provokes investors to speculate the upheavals of financial markets, estimate what’s going to happen with the market on that day.