The reality of the stock market current situation is revealed to be less stable on more then a passing glance.
American stock markets are witnessing a return to regular trading. Authoritative figures on both sides of the political divide have been quick to use this as evidence that a return to normal is possible or already occurred. Erased of some damage caused by the COVID/Lockdown crash has occurred. Yet the severe economic loss to the broader economy is not. Even the success data of a return to normal are not as defined as some would like to believe. For those interested in external factors and influences changing the data, they need to look beyond the presented numbers increasing or decreasing.
The COVID Crisis is not over:
A prominent fact is that the COVID crisis is not over even with restrictions easing across the United States. The disease also has not got any less lethal or infectious. Measures taken to limit the spread or end the spread, are ongoing in many places, and the social changes may take even longer to change. If a mass outbreak or a sudden focus on the issue by the media occurs then the market could be impacted suddenly. Public figures could also make a spontaneous announcement that also triggers mass activity
New information about the virus can also occur. There are some concerning findings of it linking to other diseases. Also, the long term impacts remain uncertain as studies keep going. At the moment the number of infections is not being watched in the United States, a surge that is reported or a surge elsewhere could trigger a response. Organizational responses also could be included in this uncertainty.
Numerous governmental groups/forces have entered the market:
The Federal reserve was not alone with its sudden and direct involvement in economic markets. The EU also saw government intervention at all levels of government. While the crisis is not resolved the government action in the economy is not likely to decrease with trade tariffs and subsidies being talked about internationally. With the government involvement already allowed the existing American and Chinese trade war is another encouraging factor. With intervention, accepted agendas will most likely find their way into the policy. This state of affairs creates the ability for sudden changes to occur in the markets. Yet also at the discretion of an individual or government that could have an agenda other than market stability.
Numerous businesses and organisations have not yet reported the details of damage:
Reporting loss of revenue already has occurred. Some firms elected to release their figures with many more dampening expectations. Yet entire sectors could not see the impacts of COVID as they work on an annual basis or have orders that are under contract. The market is not going to like the numbers given. Dampened expectations could prevent a crash, yet there is historical evidence shows that warnings will not stop them. This unknown sits over the entire market and the broader economy.
Yet the opportunity cost is a critical concern. Estimates will be less even with an optimistic outlook. With a looming election, Brexit finalisation, EU internal issues, Trade War and other global events that are known the risk management for firms is difficult and concerning findings could be declared. If only a few significant firms are reporting something, the market could react violently.
Unrest and other issues are occurring globally and escalating:
As the WHO stands behind protests, numerous protests are happening around the world. Some are in solidarity or for local Black Lives Matter causes. Yet protests in Russia against an ineffective response and protests across the Middle East and of course Hong Kong are occurring. With economic pain expected internationally, social cause and tensions will most likely increase. Depending on the cause and the power of the group, as seen with the Black Lives Matter, rapid changes can occur. The wrong cause could see market stability fall apart.
Problems existing from the GFC remain:
Issues from the GFC are still not resolved. Lending practices may have changed, but those changes are often more the language used and minor mechanisms. COVID is going to test the risk management ability of lenders as many clients find themselves unable to pay the loan back and some ventures completely close. Liquidity of the banks could have been improved yet it is also possible that some lenders may find themselves with bad investments in a fair manner. Who could have expected the sudden closure of airports and travel across the world? If a major institution is impacted, then the market again is likely to react violently.
It is fundamentally foolish to believe the current market is a return to normal:
It is concerning that information that everything is returning to normal is being given to the public. Some shares and some companies will return to something like normal. Yet the market is vast and involves numerous sectors that have not yet returned to normal. The influences that increase risk detailed in this article are also still there. If someone is trying to sell you everything is normal then be concerned about what they are trying to sell you.
There may be none economic reasons to encourage people to invest as they did before. There may even be economic reasons for the market activity to return to normal as soon as possible. Damage from COVID/Lockdown is evident, and perhaps an argument can be made that we need to move on as quickly as possible. Yet it is also true you need to look at the past and current state of the market for it to have any stability. A growth or stability built on lies and naivety will not last forever. The stock market does not tolerate that belief forever, and while it may endure to November, it is not going to last for the possible decade of rebuilding.