Going back to March 2020, when the pandemic was declared, the global economy experienced major turbulence. Along with the supply chain and other industries, the stock market saw a huge crash. The pandemic had sent the S&P 500 to a whopping low at 34% during the initial quarters. In March 2020, the world saw the fastest global crash ever happened in the history of stocks.
On the flip side, by the end of the year not only did the stock market recover quickly but also surpassed many long-standing records. The S&P 500 gained 15.6%, Nasdaq grew 43.7% and Dow Jones upsurge to 6.6%.
Timing a stock market crash is impossible. But one thing for sure is, the stock market has survived all the major historical crashes. Starting from the great depression in 1929 to the black Monday of 1987, the global recession of 2008 to the COVID-19 crash in 2020, nothing could knock the stock market down.
With the year 2021, experts are warning for another dip to be expected soon. Let’s analyze why financial experts feel a bit cautious about the stock market 2021.
Stock Market 2021: Could the Crash Happen Again?
Stock market crashes happen firstly when there is a drop in the stock market prices. Secondly, due to panic.
Last year, the coronavirus pandemic crash happened majorly due to panic among the investors. When an investor sees others selling their stock, panic triggers. The stock market values start to dip leading to a large group of investors selling off their shares. Eventually, the market crashed.
This year again, there are a few factors that make experts feel cautious about the stock market 2021. First being the pandemic again, because it has still not left us. And may plan to stick around for a while. With the new strains developing, nothing can be predicted. Next comes inflation. Investors can be pulled back by the rising inflation which has caused the stocks to be historically pricey. Lastly, the unemployment rate is reaching new heights. In 2020, the job market was hit the most leaving millions unemployed. And a significant recovery is yet to be seen.
The consequences of market crashes are many but there is one thing that interests us the most. It is in understanding the market crash and job market, its impact on each other(for obvious reasons).
And what great way to know that by studying the terrific year gone by? Let’s get you more into the details.
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Analyzing the Impact of Stock Market Crash 2020 on the Job Market Or Vice-Versa
Most of the financial experts say that a drop in the stock creates uncertainty about the future. Businesses feel unsecured and stop hiring to save more money. Companies will stop all their expansion plans and wait to see some changes. It can even go to an extent where organizations start laying off their employees to stay prepared for the worst.
It is said that the stock market is a leading indicator of the economy while the unemployment rate is a lagging indicator. Upon studying the events of 2020, it was found that after a huge dip in March, on May 18, 2020, indices started picking their pace with the development of COVID-19 vaccines by Moderna, a Biotech company. This depicts the mindset of investors. The stock market soars when there is a positive outlook on the future.
But this is not the same when it comes to the job market. When we analyzed the labour market data 2020, the unemployment rate has increased from 4.1% to 5.1% in the UK. Well, why would businesses hire more people based on rumours on vaccine development? This is how the mindset of a business owner and an investor vary. And that is the reason why even when the stock markets picked up their losses, the unemployment rates kept soaring high.
No matter what history has it that both the stock market and labour market recovers with time.
Even if there are predictions of crashes on the stock market 2021, there are also a few reasons to remain positive. Industries reopening, ongoing vaccination drives, new industries growing, low-interest rates, etc. are some factors to stay optimistic but also prepare for the worst.
Nevertheless, with the ongoing pandemic, the unemployment rate in the UK is predicted to rise by 6.5% by the end of this year. If the situation improves, figures can fall also. Let’s hope for the best.
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