Is The Dow Jones Industrial Average Recovering?

The Dow Jones Industrial Average has been through such a volatile past couple of months. In March of 2020, the Dow Jones fell nearly 3,000 points due to fears over the coronavirus. Now just recently, the Dow has just started getting back some of the value it lost in March and April. In just a matter of months, the Dow Jones had nearly lost and almost gained back its value since the 2016 election.

The question right now is whether the Dow Jones Industrial Average can recover or if its in the process of recovering. It might seem like the market is stable, but low-interest rates and rapid financial support from the Federal Reserve and the government might be what’s adding more fuel to stock prices.

If American companies are hurting then the market is gonna be negatively affected as well. You will start seeing correlations between the markets and the economy eventually.

Dow Jones chart

A chart of the dow jones industrial average from the 1980s through today.
A chart of the Dow Jones from the 1980s to today.

Look above at Dow Jones industrial average chart. The chart stretches back from the 1980s up to today. You can see that one of the biggest drops in the market just happened in February and March.

Yet, there’s a difference between this crash and ones like the 2007-2008 mortgage crisis. When that happened, stocks didn’t reach their pre-crash levels until 2013. At the beginning of February 2020, the dow was at 29,000. On June 8th, 2020, the dow was back at 27,000.

This time, the market is trying to reprice itself much faster than in 2008. This might be due to the fact the markets themselves weren’t responsible for triggering the crash.

The Dow Jones Today

On, June 11th, 2020, the Dow Jones Industrial Average, along with other major indexes suffered severe losses. The Dow Jones fell nearly 1,800 points. The reason for the selloff seemed to be from concerns over new cases of coronavirus in states that were reopening.

It seems that fears over the coronavirus are still causing investors to panic. It’s been like this ever since the pandemic first started spreading in the U.S. The market just had no idea how to react, which resulted in mass selloffs. There’s still a lot of uncertainty surrounding this virus which may be what’s contributing to the bear market.

We also heard from the federal reserve chairman on the same day. He explained that people in certain industries may never go back to work and that the economy’s recovery might take longer than initially thought. As you could imagine, this news wasn’t perceived well by investors. On the contrary, the news was relatively positive abroad which may have caused high expectations in the U.S.

The Chinese economy has been open for a while now, people are starting to get back to work. Even in Europe, countries like Greece and Italy are reopening. They’re even seeking out tourists for what’s left of the summer season.

Why Didn’t The DJIA Plunge Further?

The Dow Jones industrial average is one of the most accurate representations of the stock market’s overall value. Along with the S&P 500, the Dow is composed of many large companies that make up the U.S economy. So then why hasn’t it been affected more by the pandemic?

The job losses, especially at the beginning were record-breaking. The number of people out of work even far surpassed the 2007 recession.

The main reason why the market didn’t plummet further seems to be because of the government’s actions. The stimulus checks, unemployment boosts, and PPP loans were all good news for the markets. The Dow especially was able to prevent further losses from the positive efforts of the government.

There was also a strong job report for May which dropped the unemployment rate from 30% to 13.3%. This happened mainly from the reopening of other states around the country.

The Dow Does Not Represent All Americans

Even though the Dow Jones Industrial Average seems to be stable and a positive jobs report brought some hope; they both don’t paint the full picture. Many of the businesses in states that have reopened are still experiencing difficulty.

That one PPP loan from the government wasn’t enough to get millions of small businesses through this crisis. The government’s goal was to give the PPP loan to struggling businesses so they wouldn’t lay off their workers. It might have helped pay their workers but businesses still have other expenses.

For example, restaurants have not only their employees to pay but their suppliers and landlords as well. How were they supposed to do that while they have been closed for months? Most restaurants had trouble paying these bills even before the coronavirus. Now it’s only a matter of time before most of them file for bankruptcy.

There is also the possibility of an eviction crisis once this is over. People may have financial aid from the government now, but what happens once that dries up? Most people won’t find a job right away, if at all. So if you add the rent that’s due from previous months, then there will be a massive eviction crisis.

Recovery will be slow

Even if the market doesn’t crash again, there’s no doubt that the economy is in trouble. Remember that in the summer of 2019 the yield curve inverted for the first time in years. The global economy was already slowing down and corporate debt was at an all-time high.

The coronavirus just took all of those existing issues and amplified them. It’s like pouring alcohol all over an open wound. The economy was already hurting but now the pain was pushed to breaking point.

If you’re looking to invest it might be better to wait a little more, at least until the virus subsides. The economy won’t return to normal until COVID-19 is nonexistent in the world.

The Bottom Line

Even though the dow jones industrial average is stable, it doesn’t mean that the economy is recovering. The dow and the rest of the market will follow the lead of the overall economy. Zero interest rates and severe government aid is what’s keeping the markets up at the moment.

But once that starts to dry up, the result will be anyone’s guess. The pandemic has done some serious damage to businesses around the country. It’ll take a while before some of these companies recover if they do at all. After that, the future will be determined by how well America and the rest of the world can get their act together.

Hi, I'm Alex a freelance writer and blogger. I have been writing about finance for a little over a year now. I Really enjoy reading and writing about finance, it is one of those topics that inspires me to do better and achieve greatness.

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