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Economy

Global Stock Market: Boom or Crash?

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Less than one month till the end of 2020, and … we cannot complain it wasn’t eventful. The COVID-19 pandemic wreaked havoc the world’s economies, weighing heavily on the global stock market. Nothing will ever be the same, and yet the trading wheel keeps spinning and history tends to repeat itself.

Compared by many to the 2008’s financial crisis, this large-scale economic phenomenon was said to have changed mindsets. Unemployment rising everywhere, production lines and supply chains turned to tatters make one wonder “Is this the end?”

No, it’s definitely not the end. The pre- and post-election battle between the incumbent US President Donald Trump and his Democrat opponent Joe Biden was immediately echoed by the global stock market, shifting the world’s attention from the pandemic to politics. Despite the heated debate around a divided US government with a Democratic President whose challenging mission is to marry both ideologies for the nation’s sake, the global stock market gathered momentum. Here is a brief snapshot of the global markets in the aftermath of the US presidential elections.

How the Global Stock Market Reacted

Wall Street hailed Joe Biden’s victory, sending the S&P500 0.39% higher on 7 November, when ballot counting ended. NASDAQ 100 followed suit, edging 0.76% higher on the day, leading a “huge equity market upside”, Julian Emanuel, chief equity and derivatives strategist at BTIG wrote in a note to investors.

nasdaq slumpes

However, the rally in the stock markets was bolstered by pharma and biotech companies like Pfizer, BionTech, and Moderna, who reported 90%- ~95% positive immune response to their COVID vaccines. Whether they could end the pandemic or not remains an open question. Nevertheless, the impact the news of a vaccine, regardless of its producer, had on the global stock market was huge.

Jumping from high to high, US stocks hit a record high on 16 November, after Moderna announced its vaccine was 94.5% effective in preventing COVID-19 infections. Hopes that a successful therapy will be found and distributed soon across the world, brought back a risk-on sentiment to the stock markets. This was rapidly seen not only in the performance of Wall Street’s large-cap benchmark S&P500 index, which rose 1.2% on the day, but also in that of the small-cap Russell 2000 which ended the trading day at a record high.

sp500 rising

The spectacular rise in Russell 2000, which is also seen as a gauge of domestic economy, boosted by vaccine hopes, drove a stock market rotation on 16 November, with energy and financial stocks leading the uptrend. Travel stocks also benefited. Shares of some of the companies hit hardest by “stay-at-home” news peaked on the day. Among the greatest gainers were United Airlines which climbed as much as 8.6%, American Airlines and Delta, both of which leaped roughly 6% when the news came out.

Hotel stocks also rallied, as stock traders gained confidence. Giant hotelier stocks like Hyatt Hotels and Marriott International traded 5.9% and 4.6% higher, respectively. Hilton Hotels joined the table of the big gainers, jumping 3.7% on the news.

Similarly, cruise liners also flirted with the highs. Royal Caribbean Cruises soared 8%, reaching its intraday highs, while Carnival and Norwegian Cruise Line Holdings traded 10% higher.

On the flip side, stocks that benefited the most from the effects of the pandemic, such as Zoom, Netflix and Peloton, all tumbled. But is this dip going to last?

Several European countries like the UK, Germany, Spain, France and others are seeing a tightening of restrictions, in an effort to prevent the spread of the virus. Nevertheless, despite the current health and economic fears that are still predominant worldwide, each government has taken preventive measures and economic stimulus packages to support businesses.

Still, hopes for a new cure gave traders a shot in the arm, creating opportunities for near-term profit taking and thus lifting the broader stock market.  This was clearly reflected by the Dow Jones industrial average which opened trade on 16 November 375 points higher and hit an all-time high by the end of the trading day. By comparison, the NASDAQ Composite chopped most of its early gains as tech stocks slumped.

From the Global Stock Market to Commodities

Oil futures extended gains, revived by the travel stocks’ rally and travel-led fuel consumption. Hence, Western Texas Intermediate crude futures contracts earned 4.9%, rising to $42.09 per barrel.

oil gaining fuel

By comparison, proving its safe-haven asset qualities, gold sank on positive vaccine news, as investors shifted focus to other assets.  Silver also followed suit, erasing all its overnight gains.

But is the global market rally real? Can we trust it? The answer is hanging on the vaccine. If it works, we will likely see another global stock market boom rather than a crash. Yet it’s premature to judge.

Meanwhile, keep an eye on the news to stay in the now and choose from one or more stocks from the ones we mentioned and venture in the trading space. New to trading? Trade360 offers plenty of opportunities for traders of all levels of expertise. Open an account today.

*Trading incurs a high level of risk and can result in the loss of all your capital.

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