Financial experts and investors have a lot of data and information to sort through as we are in the middle of the financial crisis of the COVID-19 pandemic. Certain sectors have rebounded more favorably than others. Some of the rallies were predictable, but others surprised even the most experienced experts. One of the questions investors have is why the stock market appears to be somewhat stable, but the outlook of the global economy appears to be bleak. There’s no single answer to explain this, but we’ve provided some of the most likely reasons why stocks have rallied quicker than the real economy.
Stock Market Winners And Losers Are Sharply Split
Looking at the overall index performance may give the appearance of stability, but a closer look indicates otherwise. There are sharp splits among the winners and losers at the level of individual stocks, which makes the overall market appear to be balanced. For example, the technology sector is up slightly, but the energy sector is down significantly. Software stocks have seen slight increases, but airlines have seen declines greater than 60%. Pharmaceuticals, healthcare services, food services and biotechnology are examples of stock market winners during the financial crisis, while the oil and gas industry, cruise lines, lodging and entertainment have all taken major hits.
Policy Support Has Kept Some Stocks Stable
Policy support has played a major role in how stock markets look worldwide. Countries like the United States, China, the United Kingdom and Japan all have the luxury of stimulating their economy to help bridge the gap between the stocks and the real economy. It’s the policy support provided by these countries that have kept stocks as stable as possible even when global market volatility is at an all-time high. The big question is how long this support can be sustainable. Policy support can only last for so long before economic activity has to increase naturally to keep stocks stable and the economy strong.
Investors Should Approach The Stock Market With Caution
A good portfolio management strategy for investors is to look at the overall landscape of the stock market rather than focusing on individual stocks that may be performing well presently. The unknown aspect of a potential second wave of the coronavirus may create a financial crisis worse than the first wave. Then the question becomes how countries will be able to keep their economy afloat enough to help the stock market. These unknowns make it difficult to make investment decisions, but it increases the importance of discovering investment options that will remain strong long after the COVID-19 pandemic has passed.
Stock Investing Info is here for investors during these times of increased market volatility. Economic recovery will be a long process for countries worldwide, but the performance of individual stocks may be more predictable. It’s important to keep your long-term investment goals in mind as you see and read different things about the economy and markets. And never hesitate to contact us if you have any questions or concerns about any aspect of your portfolio.