The Stock Market and the Coronavirus Crisis

Wall Street demands your money and your life.

BY JOHN MILLER | January/February 2021

This article is from Dollars & Sense: Real World Economics, available at

issue 348 cover

This article is from the January/February 2021 issue.

Subscribe Now

at a 30% discount.

“ Your money or your life” is the threat petty criminals brandish when they shake down a victim on the street. If the street is Wall Street the threat is even more chilling: “ Your money and your life.”

That’ s what has transpired since the Covid-19 pandemic struck down so many in the United States, sickened others, and crippled the health care system. The economy collapsed and then struggled to recover. The stock market crashed and then soared to record highs. And the U.S. economy became yet more unequal.

When the novel coronavirus hit in February and March, the economy closed down, spending evaporated, and output plummeted, declining 10.1% in just two months. That was twice as far as output fell during the Great Recession of the last decade. Jobs disappeared. In two months, over 25 million jobs were gone, nearly three times the number of jobs lost in the Great Recession. The unemployment rate increased more in three months than it did during the first two years of the Great Depression of the 1930s. The official unemployment rate reached 14.7% in April, but that measure was undoubtedly a gross underestimate of the number of workers in need of a job.

This economic catastrophe brought the stock market stumbling down in tandem. Stock prices fell more quickly than even during the Great Depression. From February 19 to March 23, nearly $10 trillion of market value evaporated as stock prices dropped 34%, measured by the broad-based Standard and Poor’ s (S&P) 500 Index.

But the economy and the stock market soon parted ways. As businesses opened back up and the federal government’ s $2.2 trillion stimulus package (the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act) took hold, the economy began to recover. It grew quickly in June and July and then more slowly. By the end of September, economic output was still 3.5% below its pre-crisis level, disturbingly close to the 4% drop in output during the Great Recession. In November, half a year into the recovery, there were still nine million fewer jobs in the economy than at the onset of the pandemic. That was more jobs than had been lost during the Great Recession.

Meanwhile, the stock market soared. Within five months, stock prices had returned to their pre-pandemic level, and by early December the S&P 500 Index was 9% above its pre-pandemic high. The rapidity of the recovery was unprecedented. It took five-and-a-half years before stock prices returned to their pre-crises level after the Great Recession, and 25 years before stock market prices fully recovered after the Great Depression.

How Could That Be?

But how could the stock market recover so quickly, while the economy struggled to make up the ground it had lost? For starters, the stock market is not the economy— but the stock market and the economy are connected. For instance, the S&P 500 Index was pushed up by the rapid rise in the stock prices of the tech giants Apple, Microsoft, Alphabet (Google), and Facebook along with the ecommerce behemoth Amazon, all corporations positioned to do well in the pandemic. At the same time, the sectors struck hardest by the pandemic, such as restaurants, movie theaters, and parts of retail, don’ t have much of an effect on the stock market.

But most importantly, the stock market did so well because the economy did so poorly, as Keynesian economist Paul Krugman put it. With much of the economy in trouble, there were few profitable investment outlets other than the stock market. And when the Federal Reserve Board pumped money into the tanking economy it made the bonds market, the chief alternative investment outlet to the stock market, less profitable. The Fed’ s easy-money policies lowered interest rates in the hope of coaxing along the spending needed to support the failing economy. But interest rates are the rate of return that investors make on buying bonds. With a lower rate of return, investment money moved out of the bond market and into the stock market, driving up stock prices. But even with few alternatives, why would an investor buy corporate stock in a failing economy? One reason is that the Fed purchased the corporations’ bonds, saving them billions in borrowing costs, protecting them from bankruptcy, and making their stock a better investment. By June, the Fed had added $2.8 trillion of bonds, loans, and other assets to its holdings during the pandemic. That included lots of Treasury bonds that went to finance the federal government deficit and loans to county and state governments to cover their losses.

Yet More Inequality

U.S. inequality worsened as the stock market and the economy went their separate ways. Rising stock prices have benefitted the wealthy. The richest 1% of households alone own two-fifths of stocks by value, while one-half of U.S. households own no stock. A recent report from Americans for Tax Fairness and the Institute for Policy Studies estimates that the net worth of the 651 U.S. billionaires increased from $2.95 trillion in March to $4.01 trillion in December.

At the same time, the pandemic inflicted its worst pain on the economically vulnerable. From February to August, 18.9% of workers with less than a high school diploma lost their jobs, but that number was just 0.1% for workers who had graduated from college. The Monthly Labor Review, a publication of the Bureau of Labor Statistics, reports that 67.5% of workers with a college degree could do their jobs from home, while that was true for only 24.5% of workers with a high school diploma.

In the same period, 11.2% of Black workers were turned out of their jobs, but only 6.4% of white workers faced unemployment. On top of that, more than half of the white workers who lost their jobs during the pandemic had returned to work by September, while Black workers recovered just a third of their lost jobs.

With women overrepresented in the industries hardest hit in the pandemic, such as hospitality and food service, 7.8% of women workers lost their jobs, while 6.7% of male workers lost their jobs. Some 80% of the workers who dropped out of the labor force in September were women. Those women stepped up to fill the gap created by the closing of childcare centers, schools, and camps. At the same time, women continued to hold the majority of the jobs designated as essential by the Department of Homeland Security.

It Didn’ t Have to Be This Way

Had our government kept its eye on the disappearing jobs and had provided the work-a-day economy with the unqualified and unstinting support it lavished on the financial markets, the economic pain of the pandemic crisis would have been far less and would have subsided sooner. But the cost of being held up on Wall Street is truly your money and your health, if not your life.

is a professor of economics at Wheaton College and a member of the Dollars & Sense collective.

Edward Wolf, “ The Asset Prices Meltdown and the Wealth of the Middle Class,” National Bureau of Economic Research Working Paper, No. 18559; The Recession and Recovery in Perspective,” Federal Reserve Bank of Minneapolis; Dorothy Neufeld, “ How the S&P 500 Performed During Major Market Crashes,” The Visual Capitalist, Aug. 5, 2020; “ Lofty Stock Prices Don’ t Stem From a Strong Recovery,” Steven Rattner, Sept. 1, 2020; Paul Krugman, “ Crashing Economy, Rising Stocks: What Going On?” New York Times, April 30, 2020; “ Ability to work from home: evidence from tow surveys and implication for the labor market in the COVID-19 pandemic,” Monthly Labor Review, June 2020; Heather Long et al, “ The covid-19 recession the most unequal in modern U.S. history,” Washington Post, Sept 30, 2020; Stephanie Ebbert, “ Women are leaving the workforce in droves,” David Dayen, “ How the Fed Bailed Out the Investor Class Without Spending a Cent,” The American Prospect, May 27, 2020; The Boston Globe, Oct. 2, 2020; and “ Net Worth of U.S. Billionaires Has Soared by $1 Trillion,” Americans for Tax Fairness, Dec. 9, 2020.

Did you find this article useful? Please consider supporting our work by donating or subscribing.

end of article