The Truth Behind Last Week’s Stock Market Mini-Crash
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The Truth Behind Last Week’s Stock Market Mini-Crash

Will last week's decline find a consistent spot in the market's foreseeable future?
Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.

In the cyclic ebb and flow of the stock market, we are currently entering the shallower end. Last week, the S&P 500 took a dive, ending 2.3% lower for the week on Thursday, marking its worst performance since March. Likewise, the Dow fell by 1.8% and Nasdaq by 4%. In light of this, what stock outlook should we adopt for the near future?

COVID-19 and the Stock Market

Our nation, therefore, the function of the stock market — dominated by the likes of Amazon and Apple — currently occupies the space heavily burdened by three major forces:

  • The COVID-19 pandemic.
  • The fallout from the government’s response to the COVID-19 pandemic.
  • Likely contested presidential elections.

The good news is that the media portrayal of the COVID-19 pandemic is rapidly running out of steam. Effectively, everything about this crisis has been proven mendacious to some degree:

  • Moving the goalpost from “flattening the curve”, as the primary reasoning for suspending the economy, to “hunkering down until the virus is eliminated from nature”, no matter what the virus actually does.
  • No hospital being overwhelmed at all following the effort of “flattening the curve”. In fact, the opposite happened, with $660 million worth of field hospitals not treating a single COVID-19 patient.
  • Testing itself being pointless as almost no one gets sick from COVID-19, recently confirmed by CDC showing that only 6% of the 161,392 deaths died solely from COVID-19, which makes it the least fatal seasonal flu in modern history.
  • The real-life experiment of Sweden, which deemed no lockdowns and harsh measures were necessary yet achieved one of the lowest mortality rates. Again, almost entirely with the elderly demographic plagued with co-morbidities.
  • Riots exposing the selective ideological nature of economy-suspending measures.

In essence, people will have difficulty grasping the scope of this extreme misalignment of reality with the perception of reality. The consequences of this misalignment will follow us for years to come, as lockdowns reveal themselves to be far deadlier than the actual virus. However, as all of this information percolates into the public consciousness, another wave of lockdowns, representing economic bludgeoning, seems to be highly unlikely.

A Closer Look at Unemployment

Although the government prevented people from going to work and caused tens of thousands of small businesses to permanently shut down, it did provide relief in the form of record-breaking stimulus packages. Moreover, President Trump recently announced a nationwide eviction moratorium until the end of the year.

These measures are critical in keeping the country afloat. First-time unemployment claim numbers may soar week by week, but they are showing some improvement from projected numbers:

  • The current unemployment rate sits at 8.4% vs projected 9.8%, and vs July’s 10.2%
  • Non-farm payroll change: +1.371 million vs +1.350 million projected, and vs July’s +1.734 million
  • Average hourly earnings, month-over-month: 0.4% vs 0.0% projected, and vs July’s 0.1%

In the middle of this dramatic societal transformation, millions of people have shifted their habits to online activities; stock trading, payments, entertainment, education, and work. As a result, stock markets quickly rallied, especially tech and biotech stocks amid fast-tracked vaccine expectations.

Overall, the economy shows some signs of recovery, but the job market may yet be hit by another wave of furloughs announced by large companies. Therefore, a lot will depend on further stimulus packages, budget negotiations, and stormy presidential elections.

What Does the Recent Stock Market Slump Mean?

It is no coincidence that the mini-crash happened on Friday. According to Chris Beauchamp, chief market analyst at IG, such pressure release was bound to happen.

“If there is to be a crash, then the end of the first week in September, following non-farms and ahead of a long weekend in the US, is probably the perfect time to do it.”

Beauchamp notes further:

“Thursday’s mini-crash left the door open for more selling, and investors have rushed through it today in a hurry to take profits before more downside arrives,”

In other words, the inflation of software stocks was inevitable during the pandemic. As we leave it behind us, the selloff was to be expected. However, it is not reasonable to expect a return to normalcy. A great bulk of small businesses will still remain closed, many of the new online habits will remain in place, and corporate consolidation will continue apace.

Accordingly, stocks like Amazon and Apple, with their locked-down ecosystems and market domination, should remain as top choices for the upcoming decade.

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