Coronavirus Infects the Stock Market: Financial Consequences of a Pandemic

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Since the first U.S. case of the novel coronavirus (COVID-19) was reported in Washington State on January 21, 2020, more than 1.3 million Americans have contracted the virus. In addition to the overwhelming health-related implications, COVID-19 has brought the steady growth of the U.S. economy to a screeching halt. The pandemic has caused the temporary (and, in some cases, permanent) closure of non-life-sustaining businesses across the country. As a result, the United States has seen a record total number of unemployment claims north of 26 million. Another major negative effect COVID-19 has had on the U.S. economy has been in the stock market. After reaching record highs in mid-February 2020, both the Dow Jones Industrial Average and S&P 500, two indexes used to gauge the health of the stock market, fell to levels that have not been seen since the 2008 financial crisis.

The performance of the S&P 500 during the coronavirus pandemic can best be described as volatile. The index saw a drop from 3,386 on February 19, 2020, to 2,237 on March 23, 2020, a staggering 34% decrease in a little over one month. The index took one of its hardest hits of the pandemic on March 16, 2020, when the price dropped from 2,711 to 2,386, a 12% drop from the previous trading day. This decline accounts for the third worst day-over-day decrease in the history of the index. However, as Congress began and continues to roll out federal programs to help U.S. citizens combat the economic downturn, the index has seen a slow recovery. From March 23, 2020, to May 8, 2020, the S&P 500 increased 31%, a positive sign for investors. The chart below shows the volatility of the closing price of the S&P 500.

The Dow Jones Industrial Average (DJIA) tells a similar story. The DJIA also hit its low point on March 23, 2020, when the index closed at 18,592, a 57% decrease from January 21, 2020, when the index closed at 29,196. Federal aid has also been kind to the DJIA. From March 23, 2020, to May 8, 2020, the index shot up 31% to 24,331. The chart below shows the volatility of the closing price of the DJIA.

As can be seen from the performance of the S&P 500 and the Dow Jones Industrial Average over the past few months, the coronavirus has plagued the stock market. These conditions have resulted in a bear market, defined as a condition in which a market experiences prolonged price declines. However, the market has slowly rebounded as the federal government has passed legislation to help those feeling the fiscal impact of COVID-19 (see related posts below).

It is difficult to determine how the public markets will behave over the next several months as the United States continues to recover from the pandemic. The GYF Business Valuation and Litigation Services Group will continue to watch the markets to determine the impact of the national economy on privately held businesses in the process of undertaking or contemplating a business valuation.

For related information on this topic, download the materials or watch the presentation of our recent webinar. If you have questions or need assistance, please contact Logan Nawrocki at 412-338-9300.

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Logan Nawrocki

Logan Nawrocki

Logan has two years of professional experience and has earned the CVA credential from NACVA. As part of the GYF Business Valuation team, he performs risk identification, financial statement analysis, industry and economic research, and financial modeling. Logan has assisted with the valuation of privately-held companies for variety of purposes.

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