Discuss the factors that caused the U.S. stock exchange to rise to new heights in February 2020, before plummeting sharply following the COVID-19 epidemic. You can support your conclusions by providing data relevant from reliable sources.
Stock Markets Recovery
Through the years, America’s economy has experienced many ups as well as downs. One of the biggest events in recent history was the 2008 financial crisis. This caused severe damage to the stock market. The government’s bailouts were crucial in returning the economy to the pre-financial crisis levels. Two main purposes were served by the government when it injected money into the economy: to save the failing economy, and to stimulate job creation and growth. Second, the government wanted to restore investor confidence in order for stock investors to be able again invest in stocks. The Financial Times Stock Exchange saw a 31% decline in 2008 and returned to the peak of its 2007-2008 period in 2013. Largely due to government bailouts, the peak before crisis was restored.
Additional incentives have been put in place by the government, such as lower interest rates. Lower interest rates make it more attractive for borrowers as well as lenders to borrow and lend money. Due to economic activity, more people can invest in the stock exchange. Blecker (2016) argues that the significant contribution of reinvested dividends to recovery after the 2008 financial crisis is evident in Blecker’s (32.4%) high return index for 2013. Lower interest rates will lead to greater profits and investors are therefore more inclined to invest in equities. Safe-havens that offer lower returns on investment, such as deposit certificates and cash, tend to be less attractive than safe-havens .
Blecker, R. A. (2016). American economy: Slow recovery and secular stagnation since the crisis. European Journal of Economics and Economic Policies – Intervention, 13(2), 203-214. https://www.elgaronline.com/downloadpdf/journals/ejeep/132/ejeep.2016.02.05.pdf
Suhadak, S., Kurniaty, K., Handayani, S. R., & Rahayu, S. M. (2019). The influence of corporate governance on corporate value can be measured by stock return and financial performance. Asian Journal of Accounting Research. https://www.emerald.com/insight/content/doi/10.1108/AJAR-07-2018-0021/full/
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