The stock market is performing well during the ongoing Coronavirus Pandemic. Many of the traditional growth stocks, especially in the tech space, are outperforming analyst expectations. Growth in the stock market is excellent news for investors because it reinforces the inherent economic strength across American businesses.
However, the stock market is not the economy, and there are still some headwinds that investors will need to consider. COVID-19 has triggered the worse recession seen since the Second World War, and the recovery is likely to be slow.
Investors that understand the wider economic picture will be better able to make informed decisions in the coming months.
GDP Plunges by Record Figure in Second Quarter
Gross Domestic Product, or GDP, is one of the most reliable measures of total economic output. In the second quarter, U.S. GDP fell by -32.9%. This follows a decline of -5% in the first quarter.
Before the pandemic, America was in its longest-ever period of economic expansion. While the economy was slowing, a recession looked to be some years away. The Coronavirus, state lockdowns, and a slowdown in global trade fast-tracked the decline.
The U.S. only started tracking GDP after World War Two. It has never fallen more than -10% annually. With the second quarter’s steep decline, 2020 will be a record-setting year.
The biggest decline came from service industries. Tourism, travel, dining, and medical care all suffered. While hospitals and medical centers are overrun, the influx of COVID-19 patients mean that non-essential surgeries and procedures are being delayed. The healthcare industry is near capacity, but it’s not generating the revenue that it would under normal circumstances.
The home market was also a leading factor in the loss of economic output. New home investment fell by 38.7%, but the market is starting to recover. With mortgage rates hitting record lows, more people will be encouraged to engage with the market.
How Should Investors Respond to the News?
Investors can take some confidence from knowing that economic decline has already been factored into the stock market. There was pullback across equities earlier this year, but stock volume and growth is tracking well today. Some of the most reliable growth stocks are hitting record highs.
Investors accepted earlier this year that a recession was inevitable. The decline is concerning and it’s still a signal to make careful investment decisions. But, at least for now, stocks remain somewhat isolated from the worst of the damage.
Thorough stock research and diversification can help to protect any portfolio during this uncertain time.
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