Marked increase in market uncertainty due to COVID-19

Bottom Line:

The COVID-19 pandemic has caused a marked increase in market uncertainty.

Reference:

Baker, S.R. et al. COVID-Induced Economic Uncertainty. National Bureau of Economic Research Working Paper Series, No. 26983 (2020). DOI: 10.3386/w26983

Date Published:

April 2020

Synopsis:

Many aspects surrounding COVID-19 are extremely uncertain. These include the long-term capacity of healthcare systems, when effective vaccines will be implemented, and the effect of extended social distancing and market lockdowns. With the extreme suddenness of the issue, it is difficult to look through historical data to identify parallels. This paper indicates that there are five uncertainty measures that are all elevated in the COVID-19 context: stock market volatility, business expectation surveys, newspaper-based measures (incidence of articles describing uncertainty), forecaster disagreement, and statistical forecast uncertainty. The global drop in gross domestic product is partially attributed to these factors. Uncertainties have led to cuts in business expenditures on important long-term investments including innovation and training. The article states that the current COVID-19 pandemic has caused more economic uncertainty than the 2008 financial crisis and is on par with the Great Depression.

Summary by: David Liu