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Why is Wall Street Doing Well During the COVID-19 Crisis?

Stock market

Why is Wall Street Doing Well During the COVID-19 Crisis?

by | Stock market

Ben Constanty

CEO, Smartlink

Disrupting online payments with smart contracts.

Since the initial impact of COVID-19 in mid-March 2020, the stock market has continued to recover. If looking only at a stock chart, you would think all is well.

However, the overall economy is hurting, and people wonder, how can the stock market be doing so well?

To answer that question, think of this, the stock market is not the economy.

🔎 Key takeaways

  • Government aid gives investors confidence to hold or buy stocks
  • The stock market doesn’t reflect the real economy (i.e small businesses and average America)
  • Lots of large publicly traded companies like Walmart or Amazon didn’t have to stop their activities during Covid-19

Why is the stock market rising?

Why the market is going up during Covid 19

First, the stock market is rising because when investors look at companies, they look at the future. Hopefully soon, this pandemic will end, and people will go back to living a normal life.

When that happens, companies will begin earning more revenue, thus more profit. Investors look at that and continue purchasing stock in companies that may increase in value later.

On a deeper level, the cost of money is cheap for businesses and it is being acquired in one or two ways. The first is via cheap debt.

With interest rates at an all-time low, businesses can borrow for nothing. Secondly, the Government is extending aid to businesses to ensure employees remain employed and closures are a minimum.

This all culminates in the balance sheet and income statement. If a company has enough cash and liabilities are low, they have enough cash to sustain operations for quite some time.

This gives investors confidence and when they purchase a stock, price goes up.

Small towns in America

Small businesses are worse off as opposed to the Big shot companies

Another reason the stock market is doing well is the market is not average America.

If you go to any small town, you will likely find one or two publicly traded companies, with the remaining businesses being small family owned establishments.

Unfortunately, when the pandemic began those small businesses were forced to close, while the Walmart and Target stores stayed open. Therefore the analogy the stock market is not the economy is true.

Think of it as supply and demand.

Thus, the demand for goods remained the same but with only Walmart open, people had no other options. This then increases their sales, and I’m sure you can picture the rest.

How will it end?

What Covid will do to the economy

Unfortunately, these scenarios tend to end well for big business and not so well for small business owners.

As COVID cases continue to surge across the country, many cities are facing a second lockdown. Small business owners have already stated they are unable to withstand another prolonged shutdown.

While this is not the ideal scenario there is not much room for negotiation. Some businesses are defying the order simply to sustain their income and livelihood.

Like the housing crisis of 2008, it’s always the taxpayers, middle, and lower class that end up footing the bill.

As for the future, we can only hope things calm down. But remember, the next time you look at the stock market, just know that is not indicative of the economy.

Ben Constanty

CEO, Smartlink

Disrupting online
payments with smart contracts.

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