What began as a mere blip in the radar at the start of the year has since turned into a pandemic that has impacted investors from every part of the globe.
However, in spite of the widespread impact of the coronavirus, the stock market of the United States has not moved all that much from where it was at the beginning of the year. The S&P 500 ended the first half of 2020 down just 4%, with the broad market index increasing by a record 20% in the second quarter.
It remains to be seen what will happen in the second half of this year but here are several predictions that could potentially play out in the stock market and the rest of the economy in the latter part of 2020.
1. The Nasdaq will best the Dow
Arguably the best sign of the separation that is happening in the economy is that the tech-heavy Nasdaq has beaten the Dow Jones Industrial Average, which is made up of more conventional blue-chip stocks. Through the first half of the year, the Nasdaq Composite gained 12.1%, while the Dow lost 9.6%.
That trend is poised to continue in the second half of the year as the circumstances that lean towards tech stocks — the pandemic urging people to work from home, shop online, and avoid social gatherings as well as spending on things like restaurants and travel — are still very much present.
Meanwhile, there are several Dow stocks that have been vulnerable to the pandemic like McDonald’s, Nike, Disney, and Boeing, and their results are expected to be unpleasant in the second half of the year, weighing on the blue-chip index. Energy components such as ExxonMobil and Chevron also don’t look too good with oil prices still low, and financials like JPMorganChase and Goldman Sachs could go further down as the Federal Reserve warned that the 34 biggest banks could suffer as much as $700 billion in losses.
2. Another lockdown is unlikely
Although COVID-19 still rages on all across the United States and the rest of the world, Americans do not have to worry about going through another national lockdown like the one that was imposed in March and April. What is more important right now is the wearing of masks, social distancing and other measures that could help curb the spread of the dreaded disease. It appears at this point that crowded areas wherein people can’t wear masks are the most risky places to be. Indoor businesses such as restaurants, malls, cinemas and gyms may also be challenging to reopen. This means those businesses may take a sizable hit and competing options like food delivery apps, e-commerce, and video streaming could prosper.
3. Congress will pass another rescue package
The CARES Act, which gave individuals $1,200 stimulus checks, provided extra benefits to the unemployed, and rescued small businesses through the Paycheck Protection Program. It also managed to fight off the worst-case scenario from the pandemic and has helped ease in economic recovery.
However, a number of those benefits, which includes enhanced unemployment checks, are going to expire soon. At the same time, there are indicators that the economic recovery is also now slowing to a crawl. Despite a strong June jobs report, primary unemployment claims have not improved in last few weeks, and are still about twice as high as the pre-pandemic record.
Meanwhile, continuing claims are at around 20 million, displaying increasing levels of churn in the job market but not enough Americans coming back to work to bring the trend line back down. Other signs have also indicated economic activity like highway traffic and discretionary spending starting to flatten in mid-June after a healthy recovery.
Slow economic recovery and the raging pandemic will put pressure on Congress to pass a bill to keep widespread bankruptcies and evictions, as those would only worsen the health and economic crises the country is facing.