Economic Analysis –

A zero-sum game may have a great impact on investors. It can beneficial to some and detrimental to others in a bull market. This TradingSim article will explain what a zero-sum game is and how it affects investors. In the article, I will also detail how the belief in zero-sum games can be altered and changed to an approach that benefits all investors.

What is a zero-sum game?

According to researcher Rozycka-Tran, a zero-sum game has the following definition:

“A general belief system about the antagonistic nature of social relations, shared by people in a society or culture and based on the implicit assumption that a finite amount of goods exists in the world, in which one person’s winning makes others the losers, and vice versa a relatively permanent and general conviction that social relations are like a zero-sum game. People who share this conviction believe that success, especially economic success, is possible only at the expense of other people’s failures,” wrote Rozycka-Tran.

In a zero-sum game is a game in which there is one clear winner and one clear loser. For example, there is a zero-sum game in basketball. If the Los Angeles Lakers are playing the Miami Heat and the Lakers win, they are the clear winner. In the zero-sum equation, in order for the Lakers to win, the Heat have to be the losers.

In economics, there is also the belief there are two sides of a battle. If one side is victorious, the other side must suffer a defeat.

Gordon Gekko, the ruthless main character in the classic movie Wall Street, believed that trading was a zero-sum game. In the high-powered time of the ’80s when traders competed against each other on the Wall Street trading floor, Gekko saw trading as a game of clear winners and losers. If one trader gained profits, another trader had to suffer defeat as a result.

“It’s not a question of enough, pal. It’s a zero-sum game, somebody wins, somebody loses. Money itself isn’t lost or made, it’s simply transferred from one perception to another,” said the fictional trader.

Is trade a zero-sum game?

The recent trade war between the U.S. and China amplified the belief in a zero-sum game. During the impasse, St. Louis Fed Senior Economic Education Specialist Scott Wolla wrote about the trade impasse in 2019.

“Many people suspect that international trade operates as a zero-sum game. That is, they think it is like a sporting event—a competition with rules that ends with a winner and a loser. Specifically, people sometimes think that if our trading partners are gaining through international trade, the United States must be losing,” wrote Wolla.

“In this view, exported goods represent a ‘win’ for the economy and imported goods represent a ‘loss’ for the economy,” added Wolla.

In the midst of the standoff, former ambassadors spoke about how President Donald Trump viewed the U.S. -China trade war. David Adelman is a former ambassador to Singapore. He noted that the trade impasse almost plunged the stock market into a bear market.

“He[President Trump] views trade, and he views even security issues, as a zero-sum game — if he sees one country benefiting or one of America’s counterparties benefiting, he makes the assumption that it must be coming at the cost of the American economy,” noted Adelman.

“So I think it’s not too far-fetched to see the President begin to look around the world and use this very blunt instrument to prosecute his case,” added Adelman.

Global economists don’t see economy as zero-sum game

Goh Chok Tong is Emeritus Senior Minister of the Republic of Singapore. He also doesn’t see the U.S.-China trade war as a zero-sum game.

“Strategic competition between the US and China seems inevitable, but it does not have to be a zero-sum game. Nor should it close off opportunities for mutually beneficial cooperation,” said Goh.

Goh advocates for a more measured approach to trade policy.

‘This moderate voice is… a voice for peace and stability, growth and prosperity, and an interdependent rule-based multinational order that is not reliant on the benevolence of superpowers,” said Goh.

In one zero-sum game definition, there is rampant inequality. Shai Davidai is a Columbia Business School assistant professor. In an essay, he noted that the imbalance in a zero-sum game leads to binary thinking that can hurt people.

“It’s this seesaw view of the world where we can’t all be winning,” said Davidai.

Dow Jones — Many investors believe stock market is a zero-sum game

In the essay, he also noted that zero-sum thinking in trade or economics leads to a limited solution to problems.

“Zero-sum rhetoric blinds us to solutions. It’s much easier to say, ‘It’s us versus them,’ than thinking, ‘It’s us and them.’ The issue is many of the problems that are really pressing in the U.S. and the world — climate change, inequality — all of those issues affect everyone. But they require broad support from different people and different groups,” added Davidai.

In addition to Davidai, law professor Ilya Somin also thinks that zero-sum game thinking is intuitive to many people.

“It’s intuitive to think in the very short term that more for some people necessarily means less for others,” Somin says. “accept fallacies — like, there’s a fixed number of jobs so if I get a job there’s fewer jobs for everyone else,” said Somin.

How does the zero-sum game approach to trade impact the stock market?

For many economists, the zero-sum approach hurt the stock market. The University of Chicago’s Steven Davis commented that the Trump Adminstration’s policy created uncertainty on Wall Street.

He noted that the policy led to a “capricious, back-and-forth character that amplifies uncertainty and undermines a rules-based trading order.”

Davis also noted that there was a drag on international trade “by leading firms to delay or [forgo] investments and hiring, by slowing productivity-enhancing factor reallocation, and by depressing consumption expenditures.”

Zero-sum trade philosophy hurt stock market

As a result of the U.S. -China trade war, there was a reaction from Wall Street. Research from the Federal Reserve shows a detrimental effect on the stock market. Mary Amiti, an economist at the Federal Reserve, said that the U.S.- China trade impasse caused a major reduction in the market value of many firms.

“We find that U.S. and Chinese tariff announcements lowered U.S. aggregate equity prices in our sample of close to 3,000 listed firms by 6.0 percentage points: a $1.7 trillion reduction in market value for our sample of listed firms,” said Amiti.

Some economic experts say zero-sum game didn’t hurt economy too badly

While many economists say a zero-sum strategy didn’t work , others disagree. Economics expert Marc Cherry said the U.S.- China trade war didn’t hurt the economy too badly.

“Such actions from nations as influential as the US and China don’t come without an impact that affects people from all around the world. In this instance, a variety of shifts have left most markets a little worse for wear, but most drastic damage has been avoided”, said Cherry.

How does a zero-sum game affect the chip industry?

In another example of a zero-sum game trade policy, the semiconductor industry in 2018 was also caught up in the U.S.-China trade war. Because many semiconductors are made in China, the U. S. tried to impose tariffs on Chinese imports. Myson Robles-Bruce is a semiconductor value chain researcher. He noted that the zero-sum approach to tariffs would hurt the semiconductor industry.

“For the semiconductor space, the escalating tariffs dispute between the United States and China will be a bruising zero-sum game. He believes it will be “injurious to both sides in which there are no winners,” said Robles-Bruce.

research in dictionary — Research needed to understand zero-sum game

“A tariff war between the world’s two biggest makers and consumers of semiconductors is likely to spread throughout the vast electronics supply chain,” said Robles-Bruce. He notes it’s “involving multitudes of markets, trades, and businesses. Both American and Chinese companies could end up suffering.”

“While it is true that the United States has tremendous leverage over China in chip design, China has immense power in the semiconductor supply chain. In this sense, both countries are needed to drive the industry. Businesses must then absorb somehow the increased costs resulting from the tariffs, or pass them on to consumers,” added Robles-Bruce.

Robles-Bruce believes that the zero-sum approach to trade doesn’t benefit America.

“There are no winners, ” added Robles-Bruce.

Semiconductor expert says zero-sum tariffs hurt industry

In 2018, Trump imposed tariffs on 25% of Chinese imports, including semiconductor chips. Devi Keller is director of policy for the Semiconductor Industry Association. She noted that China retaliated with hefty tariffs of its own on American imports into China. Keller commented that China could become a semiconductor leader with hefty American taxes on their chips.

“China is champing at the bit to assume a leadership role in semiconductor technology, especially with regard to chip manufacturing,” wrote Keller.

Keller is against a zero-sum solution to the trade war. She advocates alternative answers to the semiconductor battle.

“The most effective way for U.S. policymakers to attract semiconductor manufacturing is not tariffs, but financial incentives like federal grants, R&D[research and development] funding, and tax credits to build fabs and research facilities,” said Keller.

Some chip manufacturers say zero-sum approach had no impact on industry

While Robles-Bruce thinks a zero-sum game is hurtful, others think there was little effect on investors’ portfolios.

Ajit Manocha is CEO at chip industry association, Semi. He believes that the zero-sum approach to trade didn’t have a great impact on the industry.

He thinks that the “tariff has not really slowed down the industry.”

Some financial experts see stock market as zero-sum game

In addition to the trade war, many see the stock market as a zero-sum game. Lawrence E. Harris is a professor of finance. He summarized zero-sum trading.

“Winning traders can only profit to the extent that other traders are willing to lose. Traders are willing to lose when they obtain external benefits from trading. The most important external benefits are expected returns from holding risky securities that represent deferred consumption. Hedging and gambling provide other external benefits,” wrote Harris.

“Markets would not exist without utilitarian traders. Their trading losses fund the winning traders who make prices efficient and provide liquidity,” added Harris.

Harris wrote about how traders need to lean into the zero-sum approach to become a better trader.

“On any given transaction, the chances of winning or losing may be near even. In the long run, however, winners profit from trading because they have some persistent advantages that allow them to win slightly more often or occasionally much bigger than losers win,” wrote Harris.

“To trade profitably in the long run, you must know your edge, you must know when it exists, and you must focus your trading to exploit it when you can. If you have no edge, you should not trade for profit,” wrote Harris.

“If you know you have no edge, but you must trade for other reasons, you should organize your trading to minimize your losses to those who do have an edge. Recognizing your edge is a prerequisite to predicting whether trading will be pro table,” added Harris.

Investor John Bogle wrote that trading is a zero-sum game because of the high costs of losses in a bear market.

“Trading is inevitably a zero-sum game before costs, and a ‘loser’s game’ after deducting the high costs of all those transactions. In economic terms, trading is a ‘rent-seeking’ function which subtracts value from Wall Street’s customers,” wrote Bogle.

Other experts explain zero-sum trading

Economist Paul Samuelson also noted that in trades, there are clear winners and losers.

“For every trader betting on higher prices, another is betting on lower prices. These trades are matched. In the stock market, all investors (buyers and sellers) can profit in a rising market, and all can lose in a falling market. In futures markets, one trader’s gain is another’s loss,” noted Samuelson.

Managing Risk — Managing risk is important in zero-sum trading

Another trading expert Dennis Gartman spoke about zero-sum trading.

“In the world of futures speculation, for every long there is an equal and opposite short. That is, unlike the world of equity trading where there needn’t be equal numbers of longs versus shorts, in the world of futures dealing there is. Money is neither made, nor lost, in futures; it is simply moved from one pocket to the next as margins are swapped at the close of trading each day,” said Gartman.

“Thus, every time there is a buyer betting that prices shall rise in the future, there is an equal seller taking the very opposite bet, betting that prices will fall,” added Gartman.

Some financial experts see trading as a zero-sum game

Santa Clara University finance professor Meir Statman noted that financial advisors should tell their clients that trading can be a zero-sum game.

“Advisors have to reach out and speak with them — not to assure them that everything is going to be fine, because you cannot promise what you cannot deliver. But they have to talk about contingencies. What is likely to be least helpful is to engage in trading strategies or rearranging your investments. If you sell, somebody buys; and one of you will turn out to be wrong. But you don’t know who it will be. That’s a zero-sum game,” noted Statman.

Financial expert Henry Blodget also sees trading as a zero-sum game. He said trading as is a zero-sum game that will be a disadvantage to day traders if they’re not experienced.

“Trading is a zero-sum game: Market moves aside, every dollar won by one trader comes out of the pocket of another trader. Day traders competing against Wall Streeters is the equivalent of a college football team (or Pee Wee team, depending on the day-trader’s skill) competing against a pro team,” said Blodget.

Financial expert says day trading is zero-sum game with winners and losers

Trader Oddmund Goette believes that trading is a zero-sum game. He said in an interview that day trading has few winners and many losers.

“Trading is what Nassim Taleb would call a highly scalable profession where just a few winners take most of the profits. You rarely read about the dentist or lawyer making $500,000 a year with very little variation and randomness, but admire the successful trader making 10 million,” said Goette.

“However, for every winner, there are so many losers. We tend to forget that the results of certain professions are pretty binary: you either become very rich (and/or famous), or you end up with nothing (literally),” said Goeette.

If traders are day trading as part of a work-from-home opportunity, they should be cautious about their trades to avoid large losses.

Financial experts see forex trader as zero-sum game

In addition to trading being a zero-sum game, many experts see forex trading as a zero-sum game as well. Robert Johnson is a professor of finance at Creighton University’s Heider College of Business. He sees forex trading as more high-stakes than trading stocks.

“Investing in currencies, whether traditional currencies or cryptocurrencies, is fundamentally different than investing in stocks, bonds, or real estate, ” said Johnson.

“Over the long term, investing in the stock market is a positive-sum game,” added Johnson.

However, Johnson sees investing in foreign exchange (forex) as a zero-sum game. For example, a trader bets on the U.S. dollar against the Japanese yen. If the dollar falls, the yen rises. So, if the yen rises, the trader is a loser in the forex market. Therefore, there is a clear winner and loser in forex trading.

“On the other hand, over both the short and long term, investing in currencies is a zero-sum game,” Johnson says. “When the U.S. dollar strengthens versus the yen, those holding U.S. dollar positions win and those holding yen positions lose an equal and opposite amount.”

Financial expert says trading derivatives is zero-sum game

In addition to forex, trading derivatives and options are seen as a zero-sum game. Financial analyst Justin Grossbard noted that trading derivatives requires clearly defined losers and winners.

“Given trading derivatives is a zero-sum game, traders are always looking for an edge. Even receiving market news a split second ahead of the masses could result in significant gains. Its why most brokers talk up the low latency of their servers and connection speeds. News and pricing communicated fast and in real time to traders is imperative as most money is made in the period of time leading up to and right after sensitive market news is released,” said Grossbard.

Financial expert Henry Blodget also says day trading is a zero-sum game. He believes that day traders are competing against more experienced traders on Wall Street to capture a lion’s share of profits.

Why investing is not a zero-sum game

While trading forex or options can be a zero-sum game, many see investing as a positive-sum game. Analysts at UBS, led by Mark Haefele, write that investing is not a zero-sum game. They argue that because the stock market grows and expands, there isn’t a clear winner or loser in investment. One reason investing isn’t a zero-sum game is because the Federal Reserve continues to help Wall Street.

“Stocks remain supported by Fed liquidity. Research shows that entering the market all at once has historically offered the best outcomes—even at record highs, where subsequent 12-month returns have averaged 12% since 1960,” said the analysts.

Citi economist Tobias Levkovich believes that stock trading is not a zero-sum game .

Investing strategy that beat zeros-sum game — Strategy is key to beat zero-sum game

“The stock market is not a zero-sum game. There’s a mistaken tendency to think that a dollar that leaves the equity market translates into a dollar less in the stock market. Equity prices often move on a change in perception typically caused by an upside earnings surprise, a takeover announcement, lowered guidance, etc., such that double-digit changes can occur without a single dollar even changing hands at that moment. Hence, while flows matter, they aren’t everything one should consider,” said Levkovich.

“Other facets can be as crucial to the understanding of likely stock price direction including economic trends, investor sentiment,” added Levkovich.

Investing leads to more growth and is not a zero-sum game

In addition to UBS analysts, many financial experts say investing will reap rewards that benefit many investors. Monica Sipes is a certified financial planner and senior wealth advisor at Exencial Wealth Advisor. She says that long-term investing is key to having more winners in the stock market.

“I’m investing in X for this reason, and I’m willing to stomach the volatility and the risk associated with investing. I know these returns are predictable, based on history,” said Sipes.

Tracey Gordon is a communications strategist in New York. She said that long-term investing leads to a growth in benefits for investors.

“Small pieces grow and, with the magic of compounding, they make a huge difference,” said Gordon.

Investor Morgan Housel says business can’t be a zero-sum game because stakeholders and business owners benefit from investments.

“Every business has three main stakeholders: Customers, employees, and shareholders. You can ignore any one of those for a while, but eventually all three have to be cared for. Otherwise they’ll revolt, and no company can survive when any one of the big three walks out,’ said Housel.

“Many companies can take care of one, many can do two. But getting all three aligned is brutally hard, because the easiest way to appease one group is at the expense of another. That’s why the rewards for those that can find the balance are so great,” said Housel.

Impact investing helps reduce zero-sum game

In addition to win-win investing, impact investing can help reduce zero-sum thinking about trading. Dutch investing firm CEO Altera Vastgoed Jaap van der Bijl spoke about how his firm helps investors and the environment.

“We are strong believers in impact investing,’ said Vastgoed. “Making your assets future-proof is a win/win for both investors and tenants, delivering returns to one and creating value for the other”.

‘We have set our goals on sustainability and we are very ambitious for a good reason,’ said van der Bijl. ‘We are delivering a dual return, financial and impact, and preparing for the future because we are spreading out our capex[capital expenditure] and also making returns more predictable for an unforeseen future, which is very attractive for investors who have long-term liabilities’.

Sustainable investing is contrary to zero-sum game

In addition to Altera Vastgoed, Third Economy is sustainable as well. The investment research firm combines research with sustainability.

“Most investors want to make money while supporting causes they care about but have been lacking an easy way to understand how their investments contribute to a sustainable economy. With the launch of VIA, Third Economy is filling that gap,” said Third Economy CEO and Founder Chad Spitler. “The depth of insight previously only available to the world’s largest investors is now accessible to all investors.”

Sustainability investing is not zero-sum game

Alex Bryan is Morningstar’s director of passive strategies research for North America. He said that ESG (Environmental, Social, and Corporate Governance) investing is vital to having investments that benefit the company and all investors.

“There’s a great realization today that ESG issues are investment issues,” said Bryan.

“They’re issues that can affect the bottom line, and that may not always be something that comes to bear immediately. But it’s something that I think more people are starting to understand is aligned with shareholder value maximization,” added Bryan.

discipline — Discipline is part of beating zero-sum game mentality

“The COVID-19 pandemic and movement for racial justice in the U.S. have kept attention on social issues, including workplace safety and diversity, and have likely added to interest in sustainable funds,” said Morningstar.

Sustainable investments contrast zero-sum game beliefs

In contrast to the cutthroat zero-sum game of trading with only some winners, sustainable investing seeks to benefit all investors. Morgan Stanley noted that more investors want to pick stocks in companies that help investors and society.

“Increasingly proactive, they [individual investors] seek products and solutions across asset classes tailored to their interests. They also want to measure the environmental and social impact of their investments,” said Morgan Stanley.

ClearBridge portfolio manager Derek Deutsch noted that he wants to invest in companies that benefit investors and their communities as well. His investment strategy contrasts the zero-sum belief that some investors must win at all costs.

“We want companies with sustainable competitive advantages, and that would include excellent corporate governance, and companies that treat their employees well, interact in a positive way in communities where they’re located, etc.,” said Deutsch.

Hedge fund founder Cliff Robbins said many investors now want to pick stocks that have a positive impact on investors and the world at large.

“The largest investors in the world, which control how stocks are ultimately valued, care about this. Endowments and foundations are totally focused on ESG considerations … pension funds care about it, labor unions care about the safety of their employees … the biggest asset managers in the world have now awoken and said ‘ESG matters to me,’ and therefore it’s going to matter to companies,” said Robbins.

Studies found that sustainable investing becoming more popular than zero-sum game investing

Financial writer Chris Farrell wrote that a recent survey found that sustainable investing is crucial before they pick a stock.

“And they found that more than half of the people they surveyed consider sustainable and responsible investments as safe havens, which in a way makes sense because companies with strong records on employee relations, environmental sustainability, corporate governance — they tend to do well over the long haul,” said Farrell.

Farrell also noted that a study of mutual fund investors found that ESG investments are crucial. The study revealed that mutual funds that had sustainable investments that benefited all investors performed well at the height of COVID-19.

“They found that mutual funds with high ESG ratings … have performed particularly well against various benchmarks during the pandemic. And so the results were particularly strong for those funds that have an environmental focus,” wrote Farrell.

Investment strategies are implemented to beat zero-sum trading mentality

Many investment firms see sustainable investment as key for investors. Pzena Investment Management ESG analyst Rachel Segal said that she may reject stocks that are sustainable. She notes that the stocks in her portfolio must go against the zero-sum game mentality.

“Sometimes we might reject a stock for an ESG reason. Sometimes we might actually see that the ESG reason is part of the reason why the stock is cheap, but also part of the potential turnaround, and we have confidence in management to help fix some of those issues. This ESG-lens is one of the many ways in which the firm approaches a stock”, said Segal.

“From our perspective, it’s really about the material risks to the investment and understanding how we can analyze those in a way to try and get the best risk-adjusted performance for our clients,” added Segal.

Calvert International Equity Fund Ian Kirwan noted that sustainable ESG investing presents a more holistic view of trading. He noted that a zero-sum game mentality to investing isn’t as rewarding to his fund.

“We use ESG as a source of information to hopefully tell us something about the investment we’re looking at. We don’t treat it with anything special … it is one of a number of different components that we use to paint the holistic picture,” said Kirwan.

Zero-sum game trading can pay off for some, but not for other investors

A zero-sum game approach to trading and investing may be beneficial to traders who want to trade forex or options. With those industries, there are obvious winners and losers with trades. The zero-sum sum trading may also be best for day traders who want a quick profit at all costs.

However, if traders want to hold their investments for a long time, a zero-sum mentality may not be best. The zero-sum trading belief will also not be good for investors who care about all investors being able to profit from trades. No matter how a trader looks at the stock market, TradingSim’s charts and blogs can help them simulate trading to find the best stocks for their portfolios.

There is an old saying about the stock market: ” A bull market will climb a wall of worry, while a bear market will slide a slippery slope of hope.” Loosely translated, that means that a bull market may have periods of decline, while a bear market may have short-term rallies. With the current upswing in stocks during the end of the bear market, is it safe to say Wall Street has recovered from COVID-19?

In this TradingSim article, I’ll explore whether the latest rallies mean that the stock market is in a sustained recovery for new investors. I’ll also write about 10 stocks that are performing well and driving the recent Wall Street rebound.

What is a slope of hope?

A slope of hope is a glimmer of hope in a bearish market. The phrase comes from financial expert Robert Prechter. He noted that even if stock prices are falling, there’s still hope for a rally. He explained the meaning of the phrase in 2010.

“Even though the market is about to begin its greatest decline ever, the era of hope is not quite finished. For as long as another year and a half, there will be rallies, fixes, hopes and reasons to believe in recovery. Our name for this phase of the bear market is the ‘Slope of Hope’,” said Prechter.

Is the U.S. still in a recession?

Even though the stock market is recovering, the U.S. economy at large is still struggling. The country’s gross domestic product (GDP) contracted at 32.9%, the largest drop since the Great Recession in 2009.

Nariman Behravesh, chief economist at IHS Markit, noted that while some industries like construction and dentistry are doing well, others like airlines are still struggling. The oil industry and natural gas ETFs are especially hit hard by decreased oil prices.

“It’s very much a sort of two-tiered economy right now,” said Behravesh.

Van Eck natural gas dropped during bear market

When the GDP plummets for two quarters in a row, that means the U.S. is in a recession. While the economy is cratering, this recession is different from the previous one ten years ago. Liz Ann Sonders, Schwab’s chief investment strategist, notes that the nationwide shutdown caused the current recession.

“We’ve never had a full-stop economic shutdown by government mandate ever in history,” said Sonders.

This recession is in contrast to the one caused by the collapse of big banks in 2008.

Why are stocks sliding down the slope of hope?

While the economy is still sluggish, stocks have been on a volatile ride. As Sonders noted, the rollercoaster ride of the stock market over the last few months has been unprecedented.

‘We went from an all time high on February 19 to down 35% on March 23 at a record clip, the fastest move from an all-time high to bear market territory in history. But the speed with which the rebound happened is unlike anything we’ve seen before,” said Sonders.

Senior economists like Bob Schwartz is optimistic that low mortgage rates and an increase in housing activity will help spur the stock market.

“Record-low mortgage rates, the onset of spring and improving sentiment are spurring a burst of activity in the housing market. For the most part, economic indicators are showing more strength than expected, confirming that the worst of the COVID-19 recession is behind us,” said Schwartz.

Ironically, the economic hardships that many Americans are experiencing are helping drive optimism in the stock market. When the COVID-19 crisis started, many people had to quarantine and miss work. The government paid out $1,200 economic stimulus checks to Americans to supplement missed income. As a result, many Americans finally had money to spend on household goods and food, which spurred Wall Street optimism.

Economic analysis firm IHS Markit noted that increased spending helped the economy.

“Household spending has benefited from federal stimulus payments (“economic impact payments”) and been reinforced by the return to work for some employees,” noted IHS Markit.

Jurrian Timmer is the director of global macro at Fidelity Investments. He’s another financial expert who believes that the stock market is a leading indicator about the economy’s eventual road to recovery.

“Typically the market will start declining before a recession is visible and it will start recovering about four months before the end of a recession”, said Timmer.

When did the slope of hope start?

While the economy is in a recession, ironically, the stock market has been climbing. Quincy Krosby is a chief media strategist at Prudential Financial. He commented that the stock market tends to rise and fall based on future hopes, not current reality. For example, in May, despite high unemployment and civil unrest, the stock market climbed. That was because of news about possible coronavirus vaccines.

“Every time there has been a positive announcement regarding a vaccine, it’s had a halo effect on the market. This is a market that has been desperate to see the other side of this, and the only way it can do that, is watching those announcement from the companies moving towards a vaccine,” said Krosby.

Why is the stock market rising despite negative economic news?

Despite the negative news about the overall economy, Krosby commented that the stock market is often independent of the economy.

“The market always seems heartless, without any emotion, without caring, without empathy. But that’s the nature of the market. The algorithms almost certainly have no shred of empathy. They’re not supposed to,” said Krosby.

Nicholas Colas is co-founder of DataTrek Research. He notes that the stock market has a history of rising despite volatility outside Wall Street.

“There are many valid reasons to be bearish on risk assets like stocks or corporate debt just now, but history shows markets look through many sorts of tumultuous events and have done so for decades. That may seem counterintuitive, and perhaps not even ‘fair,’ but it’s absolutely true,” said Colas.

Sam Stovall is the chief investment strategist at investment research firm CFRA. He’s bullish on the stock market and believes that the recent rally is a sign of long-term recovery.

“I think the March 23 low will eventually be regarded as the start of the new bull market,” said Stovall.

“The reason for my optimism is the massive amount of stimulus,” added Stovall.

Some economists are pessimistic about stock market recovery

While many economists are bullish on the stock market, some are bearish. James Montier is a behavioral economist who writes that the stock market may not recover so quickly. He writes that the economy may not recover as fast if struggling small businesses don’t rebound as well.

“The impact on business in terms of bankruptcies and lower investment will also be key. It is easy to imagine that in the wake of the virus, entrepreneurs may be hesitant to try and start new businesses, which are often said to be the lifeblood of the U.S. economy. Sadly, many businesses will have failed due to the effects of the pandemic, and even those that do survive may likely find their animal spirits dampened significantly,” wrote Montier.

Montier added that while he isn’t trying to predict the future of the stock market, Wall Street is still trying to predict the future with certainty.

“I don’t know the answers to these questions, and I am going to refrain from participating in the very popular trend of becoming an armchair epidemiologist or virologist, but I do know that these questions and many others exist,” said Montier.

“I am also certainly not in the business of trying to second-guess how the future will unfold, but I do know that anyone claiming certainty of foresight is likely to be sorely disappointed. And yet, Mr. Market appears to be doing exactly that,” added Montier.

Some analysts say stock market is still on wall of worry instead of slope of hope

In addition to Montier, Doug Ramsey is chief investment officer and portfolio manager at the Leuthold Group. He’s skeptical that the latest rally will match the last bull market rally in 2009.

“The current rally is either the first up-leg of a new bull market or the second-largest bear-market rally in the past 125 years,” said Ramsey.

“I’m trying to look at the glass as half-full, but how can we embark on a multiyear bull market when we’re at valuations that are so much higher than what they were at the same stage of the last bull market?” added Ramsey.

Ryan Detrick is a senior investment strategist at LPL Financial. He notes that there is no way to predict what will happen in the stock market during this volatile year.

“There are no roller coasters that can replicate what stocks have done so far in 2020,” said Detrick.

Despite the volatility of the stock market, there are some stocks that are performing well. Here are ten stocks that are doing well despite the pandemic.

1. Clorox

Clorox stock (NYSE:CLX) has been a top performer since the quarantine. With a demand for cleaning products, the company’s antiseptic wipes have been in high demand. Clorox stock roared up 54% this year. The stock has jumped 16.6% just over the past three months.

Clorox had excellent Q3 2020 earnings

In its Q3 2020 earnings, Lisah Burhan, Clorox’s vice-president of investor relations, spoke about Clorox’s positive earnings report. Clorox’s Q3 revenue surged 15% to $1.78 billion.

Clorox stock is climbing, leading to a slope of hope

“The business had another quarter of double-digit sales growth behind continued elevated demand across the portfolio,” said Burhan.

“While we’ve been able to add significant capacity, demand still far exceeds supply, leading to continued out-of-stocks for many products,” added Burhan.

Clorox’s CEO, Benno Dorer, noted that in Q3 2020, Clorox is still trying to meet demand for its cleaning wipes that were flying off shelves during the quarantine.

“Since Q3, we were able to bring on more than 10 new suppliers to help us maximize our output, not just for disinfecting products, but for other parts of our portfolio too,” said Dorer.

“For disinfecting products, we’re continuing to run our plants 24/7, and we’ll be bringing more disinfecting capacity online in the midterm. With all the levers we’re pulling to expand output, I am confident in our ability to do better for our customers and consumers,” added Dorer.

Analysts rate Clorox stock as a buy

Because of Clorox’s strong sales, many analysts rate Clorox stock as a buy. Linda Bolton Weiser is D.A. Davidson’s senior research analyst. She wrote in a note to clients that the strong demand for Clorox products makes Wall Street go down a slope of hope.

“Clorox continues to chase demand for disinfecting products and is still prioritizing shipments to healthcare facilities, which has caused some stock-outs on retail shelves and therefore share losses,” wrote Bolton Weiser.

2. Proctor & Gamble a stock that takes Wall Street on slope of hope

In addition to Clorox, Proctor & Gamble(NYSE:PG) is another stock that is performing well during the COVID-19 pandemic. The cleaning product company had a profitable Q4 2020 as well. Sales rose 4% to $17.7 billion in Q4 2020. Jon Moeller spoke about the corporation’s positive earnings report.

“Capping a strong year, a very strong April-June quarter. Organic sales up more than 6% on top of the base period, that was up 7%. Volume, pricing and mix each contributed to top line growth. Strong organic sales growth in our two largest markets up 19% in the U.S. and 14% in Greater China,” said Moeller.

Analysts rate P&G stock as a buy

Because of its robust earnings report, analysts rate P& G stock as a buy.

“With momentum behind both pricing and volumes, we believe P&G can still generate mid-single-digit-plus organic sales growth in 2020 despite the challenges presented by COVID-19,” analysts wrote.

“We expect P&G to leverage its improving top-line throughout its P&L, as we believe P&G will be able to drive operating leverage throughout the business (as it has done in the past) and unlock additional cost savings from its productivity programs.”

3. Zoom

Zoom growth drives Wall Street down a slope of hope

It’s hard to imagine a stock that grew more in the last few months than Zoom (NASDAQ: ZM). The videoconferencing company had a whopping 169% growth from last year. In its Q1 2021 earnings report, CEO Eric Yuan spoke about the ubiquity of Zoom as more people worked from home.

Zoom stock rises leading investors down a slope of hope

“We were humbled by the accelerated adoption of the Zoom platform around the globe in Q1. The COVID-19 crisis has driven higher demand for distributed, face-to-face interactions and collaboration using Zoom. Use cases have grown rapidly as people integrated Zoom into their work, learning, and personal lives,” said Yuan.

“I am proud of our Zoom employees who dedicated themselves to support customers and the global community during this crisis. With their tremendous efforts, we were able to provide high-quality video services to new and existing customers,” added Yuan.

Analysts rate Zoom stock a buy

Because of Zoom’s strong earnings and its success as a growth stock, Needham analyst Richard Valera said that Zoom’s growth was impressive.

“Never have I seen something of that magnitude in my 20 years of covering technology,” said Valera.

Daniel Milan is managing partner of wealth manager Cornerstone Financial Services. He believes that Zoom’s success will continue after the pandemic is over.

“Companies want to get folks back into the office and schools long for the in-class experience, but there will now be a strong Zoom component to these businesses,” said Milan.

Zoom is a stock that is performing so well that Wall Street is going down a slope of hope despite bearish tendencies.

4. Amazon leading Wall Street down a slope of hope

One of the best-performing stocks this year is Amazon (NASDAQ:AMZN). With many people quarantined, Amazon became a lifeline for ordering household items. Amazon’s shares surged 70% over the past year. The e-commerce company’s Q2 2020 revenue was an impressive $89 million.

Amazon CEO Jeff Bezos spoke about the results.

“This was another highly unusual quarter, and I couldn’t be more proud of and grateful to our employees around the globe,” said Bezos said in a statement.

“We’ve created over 175,000 new jobs since March and are in the process of bringing 125,000 of these employees into regular, full-time positions. And third-party sales again grew faster this quarter than Amazon’s first-party sales. Lastly, even in this unpredictable time, we injected significant money into the economy this quarter, investing over $9 billion in capital projects, including fulfillment, transportation, and AWS,” added Bezos.

Is Amazon stock a buy?

With Amazon’s strong Q2 2020 earnings, many analysts rate Amazon stock as a buy. K.C. Ma is president of KCM Asset Management and is a finance professor at the University of West Florida. He rates the stock as a buy for investors.

“The strong gains in ad, cloud and international margins may help offset the free one-day shipping for Prime,” he says. Long-term trends of cloud consumption should “propel (Amazon Web Services’) revenue even higher,” said Ma.

“With further economies of scale at AWS, likely continued strong growth in digital advertising and an increasingly predominant growing e-commerce base of third-party sellers, Amazon seems to us well-positioned to further prosecute its strategic mix shifts toward higher-margin businesses in 2020,” added Ma.

Mike Bailey is director of research with FBB Capital Partners. He notes that Amazon stock has the potential to grow with more advertising.

“Despite the run in Amazon shares, our sense is investors have yet to fully price in the potential upside from Amazon’s entry into the advertising business, which is growing quickly but currently is only a fraction of the size of Facebook and Google,” said Bailey.

Amazon’s stellar performance this year has led Wall Street down a slope of hope that the bear market is officially over.

5. Tesla

In addition to tech stocks, Tesla (NASDAQ:TSLA) is a stock that is rocketing up during the COVID-19 pandemic. The electric car company is now the most valuable car company in the world. Tesla had an impressive Q2 2020. The corporation reported $ 6 billion in revenue and turned a profit. The automaker spoke in a statement about the results.

“Our operating profit improved in Q2 despite challenging circumstances. Positive impacts included lower operating costs due to a temporary reduction in employee compensation expense, a sequential increase in regulatory credit revenue and deferred revenue recognition of $48M related to a Full Self Driving (FSD) feature release,” said Tesla.

“These positive contributions were offset by significant costs related to factory shutdowns, as well as a sequential increase in non-cash SBC expense primarily attributable to $101M related to 2018 CEO award milestones,” added Tesla.

Tesla stock soars after stock split

The company’s stock continued to soar after a recent five-for-one stock split.

“Tesla, Inc. (“Tesla”) announced today that the Board of Directors has approved and declared a five-for-one split of Tesla’s common stock in the form of a stock dividend to make stock ownership more accessible to employees and investors,” said Tesla.

Since making the decision, Tesla stock jumped 30%. The electric car company continues to be one of the best-performing stocks of the year.

Analysts bullish on Tesla stock as Wall Street goes down slope of hope

Cowen analyst Jeffrey Osborne is bullish on Tesla stock despite the controversies with founder Elon Musk. Osborne spoke about how Tesla is a buy because electric cars are becoming more popular.

“We[Cowen] continue to be cautious on Tesla, but anything EV related is red-hot for investors now and there is a scarcity of ways to invest in the theme, thus we see the stock continuing to ‘work’ near-term despite our caution on competitive positioning over time and valuation,” wrote Osborne in a note to clients.

Wedbush’s Dan Ives also rates Tesla stock as a buy. He thinks that Tesla’s widely available electric car battery will raise Tesla’s stock even more.

“We[Wedbush] continue to believe [electric vehicle] demand in China is starting to accelerate in July/August with Tesla competing with a number of domestic and international competitors for market share with Giga 3 remaining the linchpin of success which remains the prize that [Chief Executive Elon] Musk and Tesla are laser-focused on capturing,” wrote Ives in a research note.

Tesla is a stock that has shown enormous growth and is leading Wall Street down a slope of hope.

6. Moderna

In addition to tech stocks, pharmaceutical stocks are performing well during the new bull market, like Moderna (NYSE: MDMA). The stock appreciated over 200% this year. Moderna received $1.525 billion from the government to develop a COVID-19 vaccine. CEO Stephane Bancel spoke about the deal.

“We appreciate the confidence of the U.S. government in our mRNA vaccine platform and the continued support,” said Bancel.

Moderna leads investors on slope of hope with robust Q2 2020 earnings

Along with the coronavirus vaccine, Moderna’s Q2 2020 earnings were impressive. Moderna’s chief financial officer, David Meline spoke about the company’s $66.35 million revenue.

“We ended Q2 2020 with cash and investments of $3.1 billion, compared to $1.7 billion at the end of Q1. The increase is driven by the capital raise in May of this year. Net cash used in operating activities was $130 million for the first half of 2020, compared to $253 million in 2019,” said Meline.

Moderna a buy to many financial experts

Because of Moderna’s strong earnings and potential COVID-19 vaccine, analysts led by Geulah Livshits see Moderna as a buy for investors.

“We now await visibility on what agreements with other countries might look like but see the news as a positive signal re: Moderna’s potential entry into a commercial space often dominated by big-cap,” wrote Geulah Livshits in a note.

Danielle Shay is director of options at Simpler Trading. She advises traders to invest in Moderna stock.

“If you’re a little bit more of an aggressive trader and like to trade on more of an intraday basis, [stocks] like Moderna look absolutely amazing,” said Shay.

Moderna is a strong pharmaceutical stock that leads Wall Street down a slope of hope.

7. Gilead

Another pharmaceutical stock that’s soaring is Gilead (NYSE: GILD). In addition to Moderna, Gilead’s COVID-19 treatment, remdesivir, is in the trial stages. Gilead recently partnered with another pharmaceutical giant, Pfizer, to manufacture the drug. Gilead’s CEO Albert Bourla spoke about the deal in a statement.

“From the beginning it was clear that no one company or innovation would be able to bring an end to the COVID-19 crisis. Pfizer’s agreement with Gilead is an excellent example of members of the innovation ecosystem working together to deliver medical solutions,” said Bourla.

Gilead stock led investors on a slope of hope

“Together, we are more powerful than alone. As one of the largest manufacturers of vaccines, biologics and sterile injectables, it is a privilege to offer our expertise and infrastructure to help fight this pandemic. In that spirit, we are pleased that Gilead is using our manufacturing capacity to help facilitate supply of this medicine to patients as quickly as possible,” added Bourla.

Gilead’s Q2 2020 has strong earnings report

With the potential for remdesivir to be a COVID-19 vaccine, Gilead had a mostly positive Q2 2020. Total revenue for the second quarter was $5.1 billion with earnings per share of $1.11. CEO Daniel O’Day spoke about how remdesivir will be priced.

“We price remdesivir well below the value it provides to enable access at this critical time and ensure that we continue to meet our responsibilities in the future with further investment in remdesivir and in research that will help us to prepare for any future pandemics. The extensive clinical development work continues on remdesivir, so that we can potentially extend the treatment to many more patient groups,” said O’Day.

Because of its promising COVID-19 vaccine, Gilead is a strong stock that will lead investors on a slope of hope.

8. Target rise sends Wall Street on a slope of hope

During the pandemic, online shopping has boomed and Target(NYSE:TGT) benefited from that growth. The store chain’s stock climbed 37% in the last few months. In addition to online shopping, in-store sales and curbside pick-up also jumped in the last few months.

Target has record Q2 2020 growth

Target’s Q2 2020 revenue topped $23 billion, a 24% surge. CEO Brian Cornell spoke about the phenomenal results.

Target stock leads investors down a slope of hope

“The results we reported this morning are truly unprecedented. On the top line, we delivered second-quarter comparable sales growth of 24.3%, the strongest we’ve ever reported. Equally remarkable on the bottom line, we generated adjusted EPS of $3.38, a new record high,” said Cornell.

Target a buy to top financial experts

Because of Target’s excellent Q2 2020 report, retail experts like Neil Saunders rate Target stock a buy in a note to clients. As managing director of GlobalData Retail, he’s impressed by the company’s record-breaking quarter.

“The basic point is that Target has developed a proposition that is cohesive which means its guests will happily shop multiple categories allowing Target to maximize its share of wallet,” wrote Saunders.

“This has always been beneficial, but it came into its own at a time when consumers have been reducing the number of shopping excursions that they make. Target’s position also stands in contrast to some of its competitors, such as Walmart, which is far less able to get people to shop across multiple departments,” added Saunders.

Raymond James is also bullish on Target stock. The financial analysis firm believes Target’s robust sales make the stock a buy for investors.

“We believe the company was able to take a significant amount of share during the quarter, which bolsters our long-term view for a large share opportunity,” wrote Raymond James in a note to clients.

Evercore analyst Greg Melich also said Target stock is a buy because of its blockbuster sales online and in stores.

“Target’s digital offer is working in tandem with their fleet of 1,900 stores and shows that the multichannel mojo is a strategic positive in the battle vs. Amazon and Walmart,” said Melich.

With Target’s strong brick-and-mortar and online sales rising, the chain’s stock is leading investors down a slope of hope.

9. PayPal

In the middle of COVID-19, digital payments have become pivotal. PayPal (NYSE:PYPL) stock skyrocketed 78% over the past year. CEO Dan Schulman spoke to CNBC about the digital payment company’s growth.

“Across every industry, we’re seeing this surge towards a digital-first strategy, and all of the tools and products and services that we offer are probably more relevant and important across multiple industries than they’ve ever been before,” said Schulman.

PayPal growth drives Wall Street down a slope of hope

Because of the recent surge in digital payments, PayPal’s Q2 2020 earnings were better-than-expected. Schulman spoke about the results.

“In the midst of the COVID pandemic, we have seen substantial macro changes that we believe will have a lasting and profoundly positive impact on our business. The world has accelerated from physical to digital across multiple industries including retail. Merchants are embracing a digital-first strategy, and these trends have fueled the rapid rise of digital payments,” said Schulman.

“Revenues grew by 25% on an FX-neutral basis to $5.26 billion, accelerating after our strong 20% revenue growth in April. This is the first time our quarterly revenues have exceeded $5 billion,” added Schulman.

PayPal a buy to financial experts

As a result of PayPal’s successful Q2 2020 results, Goldman Sachs is bullish on the company’s stock.

“Given increased digital adoption over the last couple of months, convenience offered by these platforms amid the pandemic, and a large number of retailer store closures & bankruptcies, the shift to online could remain elevated over the coming quarters,” said Goldman Sachs.

PayPal’s growth during the pandemic is leading the stock market down a slope of hope to end the bear market.

10. UPS

As a result of COVID-19’s quarantine, UPS (NYSE:UPS) stock has soared with an increase in home deliveries. The package delivery company had revenue increase to $20.5 billion, a 13% jump from Q2 2019. CEO Carol Tomé spoke about the results.

“Our results were better than we expected, driven in part by the changes in demand that emerged from the pandemic, including a surge in residential volume, COVID-19 related healthcare shipments and strong outbound demand from Asia,” said Tomé.

“UPSers are keeping the world moving during this time of need and I want to thank our team for their hard work and outstanding efforts to serve our customers, our communities and each other,” added the CEO.

UPS a buy because of more deliveries in quarantine

Because of UPS’ increase in deliveries and profits, Bernstein analyst David Vernon rates the stock as a buy.

“E-commerce parcel pricing is expected to remain strong as the pull forward of e-commerce penetration has strained delivery capacity,” wrote Vernon in a research note. “With UPS looking to get ‘better, not bigger,’ FDX [FedEx]emphasizing returns and the [U.S. Postal Service] curtailing capacity, the rate environment at present is outstanding.”

BofA Securities analyst Ken Hoexter also is bullish on UPS stock.

“Given that UPS provides both a critical and difficult-to-replace service for many of its customers, we believe this strategy shift could drive a multi-year tailwind for financial results,” wrote Hoexter in a note to clients.

Slope of hope leads investors into new bull market

With the success of the previously mentioned stocks, Wall Street is going down a slope of hope. After the end of the shortest bear market, investors can feel confident that they’re trading stocks in a new bull market. With TradingSim blogs and charts, traders can determine when the stock market will slide down a slope of hope into a long-term rally.

The Stretch IRA (individual retirement account) was a popular tax strategy. The strategy benefitted wealthy people who wanted to leave their robust retirement accounts to their heirs. However, there are alternatives to the retirement account that can benefit investors.

In this TradingSim article, I’ll explain what a stretch IRA is. I’ll also detail how people benefitted it from it before 2020. Then, I will explain how recent legislation essentially ended the stretch IRA. This article will also explain what alternatives exist to help taxpayers rebalance their portfolios to pass their retirement accounts down to their loved ones.

What is a stretch IRA?

A stretch IRA is a strategy that taxpayers used to pass a 401k or IRA down to a family member. When a person uses that strategy, they don’t have to pay taxes on the IRA after it’s passed down to their heirs.

The term stretch IRA comes from the ability to pass the account down from generation to generation and “stretch” the account for many years. If a taxpayer is investing on their own, they were able to to use stretch IRA’s to benefit their investment strategies.

Brian Graff is the president and CEO of the American Retirement Association. He wrote about the details of IRAs as estate planning for taxpayers.

“An IRA is an estate planning technique used to effectively spread the taxation of an inherited IRA by choosing a grandchild as a designated beneficiary,” wrote Graff.

“Under current rules, when an IRA account holder dies, the inherited IRA is generally required to be distributed over the life expectancy of the beneficiary. That would obviously be a long time — or ‘stretched’ — in the case of a grandchild beneficiary,” added Graff.

Financial experts explain the benefits of stretch IRAs

Jeffrey Levine is a tax expert and a CPA and CEO of BluePrint Wealth Alliance. He noted that many wealthy taxpayers have used the strategy to benefit their surviving family members after they pass away.

“It makes sense: Once you’re dead, you don’t need a retirement account,” said Levine.

Financial expert Ric Edelman is co-founder of Edelman Financial Engines. He said that stretch IRA’s were a source of income.

“The Stretch IRA was a loophole. IRAs are designed to be lifetime income for you,” said Edelman.

Apple stock is a popular stock for investors who have stretch IRAs

How is a stretch IRA different from a traditional IRA?

In a traditional IRA, a person takes the required minimum distribution after turning 72 by April 1. The IRS determines the required minimum distribution by taking the account balance on December 31 of the previous year.

After that, the IRS calculates the number of years left in an account holder’s life expectancy. The IRS “Uniform Lifetime” table makes that determination. The account holders and spouse beneficiaries withdrew their funds at a certain age. They withdrew funds by the age of 72 as well.

In contrast, in a stretch IRA, an account holder names their youngest relatives as beneficiaries instead of their spouses. The account gains value because it can take longer to cash out the IRA with a younger beneficiary.

The required minimum distributions are small enough to warrant smaller taxes. If an account holder’s spouse is named as a beneficiary, they roll the IRA over in their name. After that, they name a younger family member as a beneficiary to stretch the IRA without paying taxes.

Why are people against the stretch IRA?

While many wealthy people saw the stretch IRA as a way to expand wealth, many critics say it’s a way for the well-off to dodge paying taxes on their wealth. Former President Obama proposed a budget in 2016. In that proposed budget, non-spouse beneficiaries spend their IRA funds within five years. Tax expert Jeffrey Levine noted in 2019 that the limit would end the stretch IRA.

“In contrast, today such beneficiaries are generally able to extend distributions from their inherited retirement accounts over their life expectancy,” wrote Levine.

“To be very clear, this provision would effectively mark the death of the ‘stretch IRA,’ and all the tax benefits that come along with it,” added Levine.

Obama’s proposal in 2016 laid the groundwork for the SECURE Act.

Why is the stretch IRA “dead”?

The Setting Every Community Up for Retirement Enhancement ( SECURE) Act in 2020 marked the end of the stretch IRA in its current incarnation. In that legislation, there were a variety of changes to retirement account rules. As a result of the changes, an account holder’s beneficiaries have to withdraw from an inherited IRA within 10 years.

Because of that change, beneficiaries can’t stretch the IRA tax-free for generations. Bill Van Sant is the senior vice president and managing director at Girard. He commented on how the end of stretch IRA’s affect inherited accounts.

“The result will most likely be a quicker depletion of the inherited IRA but also more of the inherited IRA going to taxes, especially if the beneficiary is working during the time in which they have to spend down this IRA,” said Van Sant.

“For a lot of people, the bulk of their wealth has been established in their IRAs,” said Michael Repak, vice president and senior estate planner with Janney Montgomery Scott.

“This law, even though it didn’t get the publicity of the Tax Cuts and Jobs Act, will have an equal impact on estate planning,” he added.

“Any time a change like this comes along it forces the profession to revisit the arithmetic of their planning techniques,” said Repak. “Truth be told, we’re all in the same boat and trying to evaluate it all.”

What are the exceptions to the end of the stretch IRA?

Graff noted that there were exceptions to the end of the stretch IRA. He said the legislation “would change the rules so that it generally would require inherited IRAs to be distributed — and taxed — within 10 years. However, in the case of beneficiaries who are children, the 10-year period would not run until the child turns 18.

“So theoretically you could still ‘stretch’ the distribution for 28 years if the grandchild is a newborn, which admittedly is much less than the child’s life expectancy. It is important to note there are broad exceptions to this rule for IRA beneficiaries who are disabled and for surviving spouses,” added Graff.

While the stretch IRA is mostly ineffective, there are exceptions to the rule.

Minors are exempt from the 10-year rule until they reach the age of 18.
Beneficiaries are exempt if they’re no more than 10 years younger than the account holder. The law suspends the 10-year rule unto the death of the beneficiary.
Disabled or chronically ill people are exempt from the law until the disabled beneficiary’s death. Then, the funds are spent within 10 years.
A surviving spouse can roll over inherited assets into their own IRA’s to bypass the stretch IRA. The remaining assets are distributed within 10 years of the surviving spouse’s death.

What does the SECURE Act mean for taxpayers and their IRAs?

As a result, many IRA holders have to make changes to their accounts. Rhian Horgan is the founder of Kindur, a retirement financial technology company. He advocates that people make their spouses beneficiaries of their accounts. With that action, they can spend the IRA within the 10-year window.

“Check your IRA beneficiaries. It may be more beneficial to name your spouse, rather than children, as the beneficiary as they are not subject to the 10-year distribution rules,” said Horgan.

In addition, the required minimum distribution age to make withdrawals changed. Before the SECURE ACT, the age was 70 1/2. Now that age is 72. Tony Drake, a certified financial planner, explained the details of the age changes.

“If you hit age 70 1/2 in 2019, you will need to take RMDs for 2019 and 2020 even though you don’t turn 72 until 2021. Those who turn age 70 1/2 in 2020 do not have to take their RMDs until age 72,” said Drake.

The SECURE Act impacts retirement accounts like stretch IRA’s

How does the SECURE ACT impact workers?

“The SECURE Act pushed that limit to age 72, allowing for IRA owners to defer paying tax on those funds while they, hopefully, keep growing,” added Drake.

Drake also noted that the SECURE Act helps IRA holders who are still working.

“The SECURE Act allows you to continue contributing to your IRA at any age as long as you are still working. This gives you a valuable tax deduction and helps you save more for retirement,” said Drake.

Drake also noted that small business owners can benefit from the SECURE Act.

“It encourages more small businesses to offer employees a 401(k) by utilizing tax credits to cover some of the cost,” said Drake.

“The SECURE Act allows plan providers to include more guaranteed lifetime income options, or annuities, in employer-sponsored 401(k)s,” added Drake.

How does the loss of stretch IRAs impact overall IRAs and estate planning?

Leon LaBrecque, chief growth officer of Sequoia Financial Group, noted that the new legislation will “open the whole door to a lot of financial planning.”

LaBreque also said that the SECURE Act impacts wealthy taxpayers. In addition, the legislation will impact middle-class IRA holders that are diligent savers.

“It really changes planning for anyone with an IRA bigger than about $400,000,” said LaBrecque. “And it wouldn’t just impact those with an IRA today,” said LaBrecque.

He noted it will impact “anyone with a large 401(k), 403(b), a pension plan, or any other retirement asset that will eventually get rolled into an IRA. This affects regular folks.”

“This law, even though it didn’t get the publicity of the Tax Cuts and Jobs Act, will have an equal impact on estate planning,” he added.

What are the tax implications for IRA holders after the SECURE Act?

As a result of the SECURE Act, there are many implications for taxpayers. Jamie Hopkins is the director of retirement research and vice president of private client services at the financial advisory firm Carson Group. He notes that assets in an IRA would have less time to grow under the new legislation.

When a beneficiary withdraws from the IRA, they have to withdraw a greater amount of money that will push them into a higher tax bracket.

“For most people, that would push them into a higher tax rate,” said Hopkins.

That child is getting that money at a point in time when he or she is probably in their highest earning years,” say

David Levine is a tax attorney at Groom Law Group. He joked that it would be better for IRA holders to pass away in 2019. Taxpayers could have still benefited from the stretch IRA last year.

“In some cases, it may be better to die on Dec. 31, 2019 than Jan. 1, 2020,” said Levine.

How does the end of stretch IRAs affect trusts?

In this bear market, IRA beneficiaries have to spend the money quicker than before. Ed Slott, a financial expert noted that IRA beneficiaries have to spend money quickly from any conduit trust that helped heirs inherit money.

Conduit trusts were similar to stretch IRAs. Trusts are a form of estate planning that gives the trust holders more control over their retirement accounts. Because of that leeway, they can let young beneficiaries extend IRA benefits. However, Slott noted that with the SECURE Act, the money must be withdrawn within a decade.

“Money is out [from the trust] after 10 years, and may get paid out to the very beneficiaries you used the trust to protect it from,” said Slott.

“Your trust won’t work anymore the way you thought it did. This is an emergency planning situation,” added Slott.

What do financial advisors advise about the end of the stretch IRA?

Many financial experts have different kinds of advice about how to handle the changes to the stretch IRA. Melissa Kahn is an advisor for State Street Global Advisors. She wants investors to talk to their financial advisors to change their estate planning.

“Advisors will want to talk to their individual clients as well as their small plan employers who may have used the ‘Stretch’ IRA tax rules for estate planning purposes. They will need to be aware of the changes and perhaps pivot to other estate planning strategies,” said Kahn.

Frederick Brackin is an associate in Gunster Law Firm’s Tax Law and Private Wealth Services. He advised IRA holders to have conduit trusts as alternatives to stretch IRA’s.

“For instance, if the client has named a conduit trust as a beneficiary, then that should immediately be discussed because under the new rule the payments to a conduit trust would flow through to the beneficiary of that trust over the 10-year period instead of over the beneficiary’s life expectancy under the prior rule,” said Brackin.

“The client may not want the beneficiary of that trust to receive such a substantial amount outright and therefore it may be necessary to amend the trust to provide for an accumulation trust instead of a conduit trust,” added Brackin.

What do financial advisors says about inherited IRAs?

Brackin adds that financial advisors should help IRA holders and advise them on how to work around the end of stretch IRAs.

“Therefore, advisors should work with clients to determine if a full or partial Roth conversion may make sense in that client’s specific situation. A Roth conversion will not be recommended under all circumstances, but where the correct circumstances exist,” said Brackin.

“For instance, if the account owner can pay the income tax on the conversion with funds that are outside of the retirement account, then the Roth conversion may be a way to work around some of the income tax issues created by the new 10-year rule,” added Brackin.

Steve Parrish is co-director of the Retirement Income Center at The American College of Financial Services. He noted that inherited IRAs will have to be reexamined.

“Inherited IRA trusts will have to be completely redrafted. Some new planning may come where the inherited IRA is deferred for 10 years after death and then paid out as a lump sum.” said Parrish.

If IRA holders still want to stretch their retirement account benefits to their loved ones, here are the top five alternatives.

1. Accumulation trusts can be better alternative to stretch IRA

If IRA holders still want to extend their IRAs, they can put their funds in accumulation trusts. Accumulation trusts are exempt from the SECURE Act if account holders take action.

While the SECURE Act requires IRA beneficiaries to withdraw their funds within 10 years, accumulation trusts can be an exception. If an IRA holder chooses, the trustee can decide to stretch the withdrawals out for several years.

Accumulation trusts can have tax liabilities

Charlie Douglas, president of HH Legacy Investments, advises IRA holders to choose accumulation trusts. In that case, trustees have more control over how they give their heirs benefits.

“If you want the stretch benefit, you have to get rid of that [see-through] trust and go to an [accumulation] trust,” said Douglas.

While the trust may be beneficial to IRA holders, there is a tax burden. If they don’t choose traditional IRAs, there can be a hidden additional tax. With a traditional IRA, the trusts are taxed at a higher rate.

2.Roth IRAs a top alternative to stretch IRAs

In addition to accumulation trusts, Roth IRAs are another good alternative to stretch IRAs. Financial advisor Michael Repak noted that the change to stretch IRAs may make investors look closer at Roth IRA’s.

“This will force people to take a hard look at Roth conversions,” said Repak.

An IRA conversion to a Roth IRA would mean a reduced tax bill for the account holders. In contrast, the IRS taxes withdrawals from traditional IRAs at a higher rate.

Google stock is a common holding in Roth IRAs

IRA expert Ed Slott noted that the Roth IRA’s can be a better alternative to a stretch IRA. It can also be better than a traditional IRA.

“That strategy was not workable once you turned 70 1/2 because the process starts by being eligible to make a contribution to a traditional IRA. Now, they can do the backdoor Roth even after 70 1/2,” said Slott.

When the IRA holder first converts their traditional account to a Roth IRA, there is a tax penalty in the year of the conversion. The original account holder pays income tax on the money that’s converted into a Roth IRA. Because the original money was never taxed, it has to be taxed as income.

Many taxpayers may see this conversion as costly. However, Rehak notes that the extra cost will have long-term benefits.

“Just about every planning technique involves some trade-offs. But the trade-offs can be worth it, said Repak.

How can heirs benefit from Roth IRAs?

Non-spouse beneficiaries of IRA holders withdraw benefits tax-free if the money was contributed using after-tax income. That’s possible if the account was five years old when the IRA holder passed away.

Rob Greenman is a financial adviser and partner of Vista Capital Partners. He commented that the tax liability for heirs can be lower. That’s possible if they’re in the same tax bracket as the original IRA holder.

“Chipping away at the future tax liability due on withdrawals at low-income bracket levels over a number of years could be a favorable move,” said Greenman.

Christine Russell is a senior manager of retirement and annuities at TD Ameritrade. She recommends that IRA holders have different accounts for heirs that have different incomes.

“A solid strategy now is to have multiple primary beneficiaries,” says Russell.

“You could leave a bigger traditional IRA to a low earner, and a smaller Roth IRA to a high earner,” added Russell.

New Roth IRAs can help sidestep stretch IRAs

LaBrecque advised IRA holders could fund a completely new Roth IRA to leave inheritances to their heirs. The contribution limit is $6,000 if an account holder is under 50. If the account holder is 50 and older, the limit is $7,000. The income limit is $137,000 for single taxpayers and $203,000 for married couples.

LaBrecque noted that Roth IRAs can be part of an inheritance to bypass stretch IRAs. He also commented that Roth IRA’s can be used to sidestep the stretch IRA instead of leaving liquid cash.

“Instead of trying to leave them money when you die, you can use a Roth as part of their inheritance,” said LaBrecque.

Slott noted that wealthy IRA holders want to make sure the funds are not squandered or lost.

“Clients [with the largest IRA balances] are naturally concerned about post-death control. They built large IRAs and want to make sure that these funds are not misused, lost or squandered,” said Slott.

He notes that that IRAs are misused “by beneficiaries due to mismanagement, lawsuits, divorce, bankruptcy or by falling prey to financial scams or predators.”

“In order to keep your client’s IRA estate plan intact, the IRA portion will probably have to be replaced with either a Roth IRA (via lifetime Roth conversions) or with life insurance, which offers better leverage and flexibility since it won’t be subject to any post-death Secure Act limitations,” said Slott.

What do financial advisors say about Roth IRA taxes to bypass stretch IRAs?

Financial experts have tax advice about Roth IRA conversions. Jeffrey Corliss is managing director and partner at RDM Financial Group. He advises IRA holders to pay taxes on Roth conversions from outside assets.

“You want to pay the taxes due on the conversion from outside assets and not from the converted IRA assets. Due to penalty issues, it is never better to pay with funds from the IRA being converted, especially if you are under [age] 59 ½,” said Corliss.

Corliss also believes that a Roth IRA would be a good alternative to a stretch IRA.

“Given the change to the stretch IRA provision in the SECURE Act, doing a Roth IRA conversion may make sense and is at least worth looking into with your tax adviser,” says Corliss. “It may save you or your heirs many dollars in income taxes.”

Van Sant spoke about how IRA beneficiaries can have tax benefits from Roth IRA’s.

“The original IRA owner will begin converting all or part of their IRA into a Roth IRA during their lifetime,” says Van Sant. “Although upon the original owner’s passing, the beneficiaries will still have to deplete the Roth IRA within 10 years, there will be no tax consequences [for the inheritors] as distributions from Roth IRAs are not subject to federal taxes.”

3. Life Insurance

In addition to Roth IRA’s, life insurance is an option for people who want to bypass the stretch IRA’s.

Financial expert Ric Edelman noted that life insurance can be an asset to taxpayers. They can benefit from having a life insurance policy to pass down to heirs.

“Parents can spend all of their assets and the kids still get an inheritance,” said Edelman.

What are the tax benefits of using life insurance to bypass the stretch IRA?

Greg Hammond is a financial professional with Hammond Iles Wealth Advisors. He noted that life insurance policies can reduce the taxes heirs have to pay.

“This strategy can be used by individuals of any age to increase the impact of their retirement funds. ” It can also “reduce the tax burden on their future heirs while paying less in income and estate taxes,” said Hammond.

Hammond noted that a life insurance policy can help limit tax liabilities for IRA holders.

“This ‘double impact’ retirement account strategy uses distributions from a retirement account to pay for a life insurance policy owned outside of the individual’s taxable state,” said Hammond.

It would “thereby leave an income and estate tax-free inheritance to their future heirs,” noted Hammond.

“Both the heirs and the charities receive the benefit of the planning, while potentially avoiding taxes,” added Hammond.

This is especially critical when you need to pay for a life insurance policy for a family member over the age of 80.

Example of Walt Disney Stock with earnings of $1.62 — Disney stock is a common stock that’s passed down through stretch IRAs

While using life insurance as an alternative to stretch IRAs is a good strategy, it isn’t always affordable. If an IRA holder lists an heir as a beneficiary on a life insurance policy late in life, it may cost more. Michael Roberts is president of Arden Trust Company. He warns policy holders to add their beneficiaries as soon as possible.

“That premium wouldn’t be cheap, and you would need to be insurable,” said Roberts.

If IRA holders want to find an alternative to stretch IRAs, a generous life insurance policy is always a good option.

4. Donating to Charity

Another way to bypass stretch IRAs is to donate IRA funds to charities. Keith Bernhardt is vice president of retirement income for Fidelity Investments. He noted that charitable contributions can help an IRA holder’s heirs.

“You might also want to do charitable giving from an IRA now and leave more money in other assets to heirs”, said Bernhardt.

How does charitable giving have an effect on taxes without a stretch IRA?

Craig Wild is a CPA and senior partner at Wild, Maney, & Resnick, LLP. He noted that taxpayers that take the standard deduction could lose a tax benefit.

“People that make charitable donations are losing the tax benefit if they’re taking the standard deduction,” said Wild.

If taxpayers over 70 want to make a direct donation from their IRA’s to charity, it can help heirs- and reap tax benefits. Wild noted that a qualified charitable contribution can meet the requirement to take minimum deductions.

“That’s an indirect way to get a tax benefit,” said Wild.

In addition, there are ways to help the beneficiaries as well.

Tim Steffen is a CPA and wealth management consultant with PIMCO. He echoes Wild’s assertion that the trust payment can copy the required minimum distribution to a beneficiary.

“In these cases, the payment you get off the trust can replicate the required minimum distribution the beneficiary would have taken from an IRA,” said Steffen.

“You get a payment from the charitable remainder trust instead of the IRA each year,” added Steffen.

While there is a tax deduction, the amount may be less because of the IRS. Thomas Neuhoff is a CPA with Henry & Peters in Tyler, Texas. He noted that the charitable deduction may be less than expected.

“The charitable deduction up front is so much smaller because of the rate set by the IRS,” said Neuhoff.

5. Create a charitable trust to bypass stretch IRA

In addition to giving money to a charity, IRA holders can create charitable trusts as an alternative to stretch IRAs. While it is possible, the amount in the IRA that a holder needs could be hefty. Robert S. Keebler is a CPA and partner with Keebler & Associates LLP. He noted that a great amount is needed in an IRA to create a charitable trust.

“Realistically, you’ll need at least $500,000 in the IRA to make it worthwhile,” said Keebler.

If there is a tragedy involving an heir, Keebler notes that the money in the trust still goes to a charity.

“If you do it for the life of your child, and the child dies a month after you do”, there is a consequence. “Then that money goes to charity,” said Keebler.

What are the tax implications of a charitable trust to bypass stretch IRAs?

Scott Bishop is vice president of financial planning with STA Wealth Management. He explained how charitable trusts are created.

“The asset owner could create and fund the trust with IRA assets at death, and beneficiaries would get a regular income stream from the trust,” said Bishop.

He also added that “similar to the required minimum distributions from an inherited IRA, which could be distributed over a certain amount of time or the beneficiary’s lifetime.”The assets are only taxed when they leave the trust.”

Repak noted that the longer that a person should carefully plan their charitable trust.

“The longer the period for the stream of payments, the less the tax deduction, so the term of the trust should be considered and coordinated with the IRA owner’s family goals and objectives,” said Repak.

“I think this is one of the most interesting options, but it’s important to bear in mind that this works best for a family that already has philanthropic intentions,” said Repak.

While giving to charity is something people should do anyway, creating a charitable trust can offer a way for IRA holders to help their heirs as well.

Alternatives to stretch IRA can help account holders and their heirs

While the stretch IRA is effectively over, there are still options for account holders. These alternatives can help account holders pass down their hard-earned assets to their loved ones. With TradingSim’s informative articles, people can find the best information to have the best financial futures.

During this COVID-19 pandemic, many small businesses suffered. The pandemic especially hit pure play businesses hard. Many small business owners lost customers and much-needed money. The nationwide shutdown caused businesses to shut their doors for months. However, there are lifelines for small businesses during this bear market. Small business owners can receive help from government loans.

This TradingSim article will help small business owners find information about how to apply for loans. These small business loans can help them navigate this crisis. In this article, I will also present the challenges and success stories of the loans. These stories can help small business owners have the information to save their businesses.

How have small businesses been impacted by COVID-19?

The coronavirus quarantines devastated many small businesses. Many shops closed because of the economic slowdown. Deborah Weinswig is CEO and founder of retail advisory and research firm Coresight Research. She believes that 15,000 small businesses will close if the crisis continues.

“I think we will see an increase in the number of Chapter 7 [bankruptcy filings]. Nobody knows how to deal with this,” said Weinswig.

Holly Wade is the director of research and policy analysis for the National Federation of Independent Business. During the coronavirus, she notes that it’s hard for small businesses to maintain cash flow during this economic crisis.

“Cash flow, even in a good economy is often a struggle for small businesses. But, now it has turned into one of the most, if not the most, important obstacle that they face,” said Wade.

In this uncertain economy, Wade also notes that small business owners are going through different situations that depend on their industries.

“Small business owners are having to navigate a very, very uncertain future right now and it’s not a one size fits all impact on small firms. It depends on the industry, where they’re located, what the degree of the impact is on them,” said Wade.

Minority-owned businesses encouraged to get small business loans

Small Business Loan

Over the past four months, the coronavirus hurt small businesses. However, COVID-19 closures decimated minority-owned businesses. Because of that, the Small Business Association(SBA) encourages business owners of color to apply for the loans.

A recent survey of 500 African-American and Latinx business owners applied for PPP funds revealed a racial disparity. In this survey, the organization found that only 3 out of 10 business owners received the full fund amount.

Banks shut out minority small business owners

Many banks disburse small business loans to companies. When banks disburse funds, few minority business owners receive funding through banking institutions. In the survey from the Association for Enterprise Opportunity , it found that only 6% of minority-owned businesses receive bank funds.

Karl Franz Williams is a Black business owner in Harlem. In his experience as a small business owner, he notes that Black and Latinx entrepreneurs face additional hurdles when they apply for loans.

“There are issues for Black and brown entrepreneurs that were there before. They are considered less bankable with equal credit scores and resumes, that is all part of the problem,” said Williams.

Minority small businesses hurt by lack of clientele

Many Black-owned businesses face challenges for many reasons. However, a key reason they struggle is that their customers don’t have as much money to spend since March. Since the government shutdown, Black unemployment is high at 15%. Belinda Archibong is the associate professor at economics at Barnard College. She notes that the high unemployment rate of African-Americans hurt minority small businesses.

“The consumption and spending power of black communities was most highly hit because of high unemployment. It’s a big challenge in terms of thinking of how we will address these issues to ensure that the racial wealth gap doesn’t worsen,” said Archibong.

Connie Evans is the Association for Enterprise Opportunity’s president and chief executive. In her business expertise, she noted that local minority small businesses must receive loans to survive.

“These local businesses in the community, just because they don’t have a strong balance sheet like a large corporation doesn’t mean they are high risk. They are essential in the community,” said Evans.

How to apply for the Paycheck Protection Program

Paycheck Protection Program

The Paycheck Protection Program(PPP) is one program that can help small business owners during the coronavirus. The program is part of the CARES (Coronavirus Aid, Relief, and Economic Security) Act. Small business owners can apply for the loan through the Small Business Administration website. In the PPP program, loans pay off outstanding business debts . In addition, companies use the funds for other business needs.

“These loans may be used to pay debts, payroll, accounts payable and other bills that can’t be paid because of the disaster’s impact that are not already covered by a Paycheck Protection Program loan,” said the Small Business Administration.

The low-interest loans have a rate of 1%. The businesses don’t have to pay fees to receive the loans. The small businesses also don’t have to put up collateral to receive funds.

The loans have a maturity of two years if the government gives the loans before June 5. If the small businesses received loans after June 5, they must be paid within five years.

Small business owners can apply through their banks or credit union. Because the coronavirus has disproportionately impacted minority-owned businesses, they are encouraged to apply for loans. The deadline to apply is August 8.

Who qualifies for the Paycheck Protection Program loan?

Small businesses with less than 500 employees qualify for the PPP loans. If small businesses have more than 500 workers, they must be a non-profit or a veterans’ group. Native American tribal businesses also qualify for the loans.

Some companies have lost value because they don’t have a successful trading strategy. In that case, they can qualify for the loans. Also, independent contractors and self-employed people like day traders can apply for PPP loans as well.

How does the Small Business Association forgive PPP loans?

Small business owners can apply for loan forgiveness loans through the Small Business Association website. Through this program, the government forgives PPP loans when businesses use funds to meet employees’ payrolls. The Paycheck Protection Program loan payments defer for six months.

Treasury Secretary Steve Mnuchin also wants Congress to forgive small business loans. During testimony before Congress, Mnuchin said that the government should act to forgive more loans.

“I know one of the things we’ll talk about is: Should we just have forgiveness for all the small loans? That’s something we should consider. We should obviously make sure there’s some fraud protection, ” said Mnuchin.

How do small business loans affect employees?

The government forgives small business loans if the companies retain their employees for full-time employment. Small businesses have to use 60% of the funds towards payroll costs, including health care. The Small Business Administration cuts the loan amount if the company reduces its workforce.

If the company cuts staff, the government cuts the loan payment as well. If a company lays off and rehires staff, the disbursement won’t be affected. When small business owners have more questions, they can consult a complete list of frequently asked questions and answers are on the SBA website.

Economic Impact Disaster loans can help small businesses

In addition to the Paycheck Protection Program loans, the Economic Impact Disaster Loans (EIDL) are also available. The Small Business Administration gives loans to businesses after disasters strike. Even though the $20 billion advance funds have currently run out, small businesses can still apply for the loans here until December 31.

The previous advance loans provided $1,000 per employee of a small business. Independent contractors were also eligible to receive $1,000. The greatest amount that small businesses could receive through EIDL was $10,000.

The small business loans help small company owners and freelancers. In a statement, the Small Business Administration explained the purpose of the program.

“Following the enactment of COVID-19 emergency legislation, the SBA provided nearly six million small businesses employing 30.5 million people with $20 billion through the unprecedented EIDL Advance program,” said the Small Business Administration.

“This program, built from the ground up in less than two weeks, assisted millions of small businesses, including non-profit organizations, sole proprietors and independent contractors, from a wide array of industries and business sectors,” said the Small Business Administration.

What are the requirements for the EIDL?

To qualify for the EIDL, small businesses must pass a credit check. The interest rate is 3.75% for small businesses and 2.75% for non-profits. The loans can take 30 years to repay. The loan repayment is delayed for a year. However, interest accrues during the year-long payment delay.

Loans over $25,000 may require small business owners to put up collateral. If loans total over $200,000, a personal guarantee may be required for the loan.

How are EIDL’s used?

EIDL’s maintain payroll and health care for small business employees. With the loans, businesses pay off debt and increased supply costs. In addition, EIDL’s also have to used to pay rent and other expenditures.

Can EIDLs restart to help small businesses?

The EIDL reduced its advances from $2 million to $150,000. As a result, many businesses haven’t received funds.

Politicians want to re-open and expand the EIDL. New York senator Chuck Schumer leads a group of senators in this battle. They want to re-instate the $2 million that can be granted to small businesses. Recently, Schumer and the other senators alleged that the Small Business Administration reduced the funds without warning them.

“The SBA has no excuse for its stubborn refusal to communicate transparently with the public or with Congress, and for its complete disregard for Congressional intent in the delivery of this critical assistance,” said the senators.

The senators also allege that the SBA is “completely disregarding current law and Congress’ clear intent that, in accordance with the CARES Act, small businesses be allowed to borrow up to $2 million to respond to the COVID-19 pandemic”.

Community Development Financial Institutions get extra funding for small business loans

The Small Business Administration has responded to criticism about bypassing small businesses by giving more grants. In response, The SBA recently gave an additional $10 billion in Paycheck Protection Loans to Community Development Financial Institutions (CDFI’s).

William Michael Cunningham, an economist and banking expert, praises the additional funding for the CDFI’s. However, he saw greater funding as evidence that small businesses are in more trouble than previously believed.

He noted that “the downside is that the speed with which SBA has come up with this additional funding may indicate that the economic situation is worse than we thought.”

CDFI’s help fund underserved small businesses

In many neighborhoods, CDFI’s are banking institutions that are very helpful to small businesses. With CDFIs, they’re institutions that specialize in providing loans to low-income and minority communities.

John Holdsclaw is board chair of the Coalition of Community Development Financial Institutions. Because of his experience with small business loans, he noted the importance of the CDFI’s to provide small business loans.

“These institutions provide equity in these black and brown, low-income communities. They were created to be able to provide fairly priced loans and a place to build assets. It’s not about profit, it’s about creating access,” Holdsclaw.

Janie Barrera, CEO of CDFI LiftFund, notes that the financial institutions help small businesses and do much more.

“It’s a ripple effect, small-business owners generate revenue for the state, employ others in their community who utilize that money to put food on their table,” said Barrera.

CDFI’s offer PPP small business loans

In order to help small businesses, the SBA is providing $10 billion to CDFI’s to help small businesses. In a statement, SBA administrator Jovita Carranza explained the purpose of the expanded loans.

“The forgivable loan program, PPP, is dedicated to providing emergency capital to sustain our nation’s small businesses, the drivers of our economy, and retain their employees,” stated SBA Administrator Jovita Carranza.

“CDFIs provide critically important capital and technical assistance to small businesses from rural, minority, and other underserved communities, especially during this economically challenging time.”

Through CDFI’s, small business owners can get more funding for their companies. As a result of the SBA help, the CDFI’s use the extra funding to loan small businesses more money. Kevin Cohee is CEO of the OneUnited CDFI. Through that community financial development institution, OneUnited disbursed Paycheck Protection Program loans to gig workers.

“The first PPP loan we processed was an Uber driver. The reason we did that was to make the point that it’s the smallest among us – the one you could lose money on – that need the most help,” said Cohee.

If small business owners want more information about small business loans, they can find their local CDFI here.

Lowe’s offers small business grants

In addition to community development financial institutions, corporations are offering small business loans as well. To help many small businesss, home improvement chain Lowe’s is giving $25 million in grants to rural small business owners.

In addition to those funds, the corporation will also offer $30 million in grants to minority-owned businesses. As a result, Lowe’s is partnering with the Local Initiatives Support Corporation to disburse the grants.

In a a statement, Lowe’s Chief Brand and Marketing Officer Marisa Thalberg spoke about the opportunities offered to small businesses.

Lowe’s is offering small business grants during COVID-19

“As we started recognizing where the [pandemic] impact was being felt, we just felt that there wasn’t enough conversation around the impact in rural America,” said Thalberg.

During the COVID-19 pandemic, Andarrio Johnson is a business owner Lowe’s helped with the grant. The caterer received $20,000 from the company to keep his business afloat. He’s grateful to Lowe’s for the grant.

“It meant a lot I couldn’t believe these companies are actually looking at minority small businesses – I couldn’t even believe it, it’s a dream come true,” said Johnson.

Because Lowe’s assisted him, Johnson wants to take some of his grant money to give back to the community.

“I just felt like it’s a way to give back and if you give you receive and look- example right now Lowe’s just gave me something. It feels great, it feels great I can’t believe it sometimes,” Andarrio Johnson said.

If entrepreneurs want more information, small business owners can apply for the grants here.

Verizon gives grants to small businesses

In addition to Lowe’s, Verizon is also helping small business owners with grants. In order to help businesses, the company’s Small Business Recovery Fund is giving $7 million in grants to small businesses. Rose Stuckey Kirk is Chief Corporate Social Responsibility Officer of Verizon. In a statement, she explained Verizon’s initiative to help small businesses.

Verizon is helping companies that didn’t receive small business loans

“Verizon recognizes how valuable small businesses are. The economic stability of our communities is based on their success. It’s critical that we lean in and support these businesses. So they can continue to sustain themselves during this unprecedented time of need,” said Kirk.

If entrepreneurs want to find out if they’re eligible for the Verizon grants, they can apply here.

Beyonce offers small business assistance

While many celebrities grab attention for themselves, many are giving back to small businesses. Beyonce is one celebrity that gave back to small businesses. Recently, the superstar partnered with the NAACP to give $10,000 in grants to Black-owned small businesses.

“Over the last couple of months, the pandemic and outpours for justice throughout the Black community and across the country has been felt in every imaginable area of our lives, including in how our local businesses continue to operate,” noted the NAACP website.

“The challenges of Black business owners navigating in the climate cannot be understated, as the effects of uprisings across the nation have led to many businesses being placed in dire straits due to damages and other small business needs,” added the civil rights organization.

While the loan’s deadline has passed, the NAACP still has a list of state resources for small businesses here.

Magic Johnson offers small business grants

NBA legend and successful entrepreneur Magic Johnson is stepping in to help small businesses that were left out of the Paycheck Protection Program loans. As a business owner himself, he knows the challenges that small businesses currently face in the COVID-19 era.

“We have to remember that these businesses have been in urban communities for a long time. They’ve been doing great things, and they probably didn’t have a relationship with the banks when the stimulus package went out. So now, we’re able to say, ‘Hey, you can have a relationship with us,’” said Johnson.

In his partnership with MBE Capital, he is offering $100 million in loans to minority-owned businesses. As a business owner, he knows how pivotal small businesses are to a community.

“This[the loans] will allow them to keep their employees and keep their doors open”, said Johnson.

If small business owners want to apply for PPP loans through MBE Capital, they can apply here.

Doonie Fund helps female-owned small businesses

The Doonie Fund is an organization that helps female-owned businesses. Since April 2020, founder Kathryn Dooney has given thousands of dollars to women-owned small businesses. Finney explained how the fund has helped women entrepreneurs.

“We’ve seen entrepreneurs who were able to, with the Doonie Fund micro investment, pivot their businesses to adapt to these challenging times. Some used it to gain new customers and increase revenue, and others simply needed it to buy groceries or pay for utility bills to sustain their livelihood, so that they can focus on pivoting their businesses during this time,” said Finney.

For women business owners who are interested in applying, they can visit the Dooney Fund site.

Small banks help give small business loans

Some businesses that benefitted from the PPP loans include Dallas-based fitness equipment company CommFit. CEO Seth Gordon noted that his local bank, Live Oak, was helpful in disbursing the funds to his business.

“As the rules of engagement changed, Live Oak was extremely helpful. We were really lucky to work with a great bank. I do have friends that are lost right now trying to figure out how to get money,” said Gordon.

Gordon noted that the Paycheck Protection Program loans will help keep his business afloat.

“It’s rare that you get to take advantage of government subsidies, so we feel very fortunate. You hate that it’s under these circumstances, but this is extremely helpful and relieves the short-term pressure. Now, if this becomes a six-month or 12-month or 18-month issue, this money will only last so long,” said Gordon.

Jesse Safir is the owner of ABG Print. When his business needed funding, he noted that his small bank, Live Oak, helped process his PPP loan.

“The big banks, all their call centers are down, they can’t process the volume right now. Live Oak knows me, knows my loan, there’s less ambiguity. And I’m already a borrower, and that’s so important, because think about the incentive that puts on them,” said Safir.

Many small banks assisted small businesses when they needed help. While there were success stories, the Paycheck Protection Program loans have encountered problems as well.

Small business loan delays hurt entrepreneurs

While some businesses have been helped, some businesses are still struggling to receive funds. The $670 billion PPP loans promised to big businesses ran out of money within days. Many small business owners are scrambling for funds to help their businesses the coronavirus-caused shutdowns.

Jaja Chen is a business owner that applied for PPP loans in March. She’s the owner of the Waco Cha bubble tea shop in Waco, Texas. Even though her loan was approved in June, she still hasn’t received her funds.

PPP loan system leads to small business loan delays

In response, SBA representative Sean Smith, wrote in an email to Chen that the loan system had a temporary error.

“The system had a temporary glitch that affected initial disbursements. There is a chance that some people got overlooked for the initial disbursement,” wrote Smith.

The SBA loan processing system, E-TRAN, was overwhelmed by the thousands of PPP applications. A spokesperson for the SBA explained the technical problem.

“The pacing mechanism prevents any one lender from submitting thousands of loans an hour into the E-TRAN system. If a lender goes above the pacing limit they will get timed out,” said the spokesman.

Large retailer J.C. Penney and small businesses suffered during COVID-19

Chen noted that the delays in Paycheck Protection Program loans have delayed the re-opening of her store.

“We can’t just continue waiting. We are very thankful that despite the federal issues we have been able to actually continue to grow our business and recoup some of our losses through creating new ideas and concepts,” said Chen.

Another small business owner who was shut out of PPP loans was David Lee. He’s the owner of Blue Moon Construction in Tampa, Florida.

The decline of the Dow Jones caused a greater need for small business loans

Lee is frustrated with the delayed and reduced funding he and his employees received from the EIDL program.

“We feel shortchanged. This was our only access to the stimulus,” said Lee.

Lee feels that the PPP disbursement was erratic and feels betrayed by the Small Business Administration.

“Now they’re pulling the rug out from under us. It feels like the government is overlooking America’s smallest companies,” said Lee.

Kanye West receives PPP loans, while small businesses shut out

According to reports, billionaire rapper and presidential candidate Kanye West received between $2-$5 million for his Yeezy company through PPP loans. Other famous organizations like the Los Angeles Lakers have received funding. The team received funds that didn’t help small businesses. The NBA team returned the $4 million the organization received.

“Once we found out the funds from the program had been depleted, we repaid the loan so that financial support would be directed to those most in need,” said the Lakers in a statement.

PPP loan program flaws exposed

In addition to the funds going to wealthy organizations, there are other flaws in the Paycheck Protection Program. Many businesses have to spend 70% of the loans on employee payroll.

Michael Minnis is an accounting professor at the University of Chicago Booth School of Business. He said the PPP loans focus too much on employee payroll and ignores other needs, like utilities and rent.

“The design was to help companies fund their payroll. One can step back and say, ‘Gosh, is that the design we wanted to have?’” said Minnis.

Minnis also noted that not all small businesses can disburse the loans equally because there are different business sizes.

“It wasn’t called the small business protection program or the microbusiness protection program. Companies in the 100- to 500-employee range have more payroll dollars than companies in the under-100-employees range. That’s just math,” added Minnis.

The government vows to clear small business loan roadblocks

In response to the criticism, Small Business Administration Associate Administrator James Rivera acknowledged that the government agency made mistakes.

“We didn’t communicate ahead of time, and in hindsight we probably should have,” said Rivera.

The Small Business Administration vowed to take more action to streamline the small business loan application process.

“The [SBA] is trying to go through the apps to see that everyone that is due an initial disbursement will get one,” said the SBA in a statement.

“The SBA is strongly committed to working around the clock”, added the Small Business Administration.

The SBA notes that it’s “providing dedicated emergency assistance to the small businesses and non-profits that are facing economic disruption due to the COVID-19 impact.”

Government vows to streamline PPP loan forgiveness application process

For entrepreneurs that are fortunate enough to secure PPP loans, there is still a complicated process to fill out loan forgiveness forms.

Erik Asgeirsson, president and CEO of CPA.com, spoke about how to simplify the PPP loan forgiveness process.

“From the beginning [of the PPP], we’ve been issuing documents with what our recommendations were and our suggestions on how loan forgiveness works. And now we’ve put it all into one application process,” said Asgeirsson.

“This tool hopefully will also encourage people with the next phase of business relief to make sure that complexity in the process is not a reason to not get the assistance they need,” Asgeirsson says.

If small business owners want to apply for the loan forgiveness program streamlined process, they can apply here.

Treasury Secretary vows to make changes

In the wake of the outrage about the PPP loan disbursements, there may be changes. Treasury Secretary Steve Mnuchin promised to streamline the process. In testimony before Congress, he talked about possible PPP loan forgiveness. He also vowed not to show preferences to big businesses that don’t need the loans as much as small businesses. Mnuchin wants to act to prevent widespread fraud in the Paycheck Protection Program.

” I know one of the things we’ll talk about is: Should we just have forgiveness for all the small loans?” That’s something we should consider. We should obviously make sure there’s some fraud protection,” said Mnuchin.

“This time we need to have a revenue test and making sure money is going to businesses that have significant revenue declines,” added Mnuchin.

Local governments step in to help small business owners

In response to the sluggish national government response, many small local governments are helping small businesses. Harris County in Texas has stepped in to disburse $10 million in loans to small companies. The small business loans come from Harris County’s own emergency fund to help small businesses. Harris Country Commissioner Adrian Garcia noted that the county’s loan program was simplified to assist small businesses.

“The federal government is so far removed from the local community that it didn’t think about, and it can’t think about, simplicity,” said Garcia.

“My charge to my staff was to keep it simple. We got to make this easy to apply for and user friendly,” added Garcia.

In the partnership with CFDI LiftFund, the Harris County PPP loans are at $25,000 at 0% interest. Loan payments are deferred for the first three months. The loans are repaid if the businesses remain open after five years.

In addition to Houston’s Harris County providing small business loans, Corpus Christi, Texas city manager Peter Zanoni is taking action as well. He wants to help local small businesses secure funds.

“We wanted to have locals feel comfortable, to have access to a human being, to give small-business owners who may not be sophisticated with some of these federal programs the ability to not feel intimidated to access credit,” said Peter Zanoni, city manager of Corpus Christi.

Other resources for other small business loans

If local businesses need other resources, there are ways they can receive funds. Nav is a company that helps small businesses obtain loans and grants. The company offers small business grants through October. Small business owners become Nav members. After becoming members, entrepreneurs can apply for the $10,000 loans that are disbursed every quarter. The deadline is September 1 for the fall grants.

In addition to that assistance, small business owners can apply for multiple loans and grants online. Small businesses can also try fundraising sites online or try microloans as well. By conducting research and reaching out to fellow entrepreneurs, small business owners can get the resources to help their companies survive.

impact of coronavirus on stock market crash 2020

The recent weeks have been the scene of a worldwide health crisis that has drastically impacted the stock markets and global economic growth. The Coronavirus (COVID-19) spread from China into a worldwide pandemic and caused an unprecedented stock market crash in February 2020. The S&P 500 has experienced a collapse of about 35.5% in almost 30 days. As has said Joseph Stiglitz, Chief Economist at the World Bank,

This is a different kind of crisis than normal crises. It’s just not a problem of aggregate demand.

We will discuss the COVID-19 pandemic and its impacts on global economies, and ultimately how this pandemic was responsible for the 2020 stock market crash. I will focus on the following:

Lessons learned, expectations, and projections of this crisis, not only on the stock market but also on world economies.
We will also analyze the potential changes that will appear in the aftermath of the crisis.
Reactions of governments and international institutions in response to the crisis.
Finally, we will present the reaction of some advanced economies to this health crisis.

Before discussing these points, let us first talk about how the COVID-19 pandemic started and how it spreads the world.

What are the main causes of COVID-19 pandemic and how does it happen?

Several scientific papers document that the coronaviruses were first discovered in the 1930s in domestic poultry and usually cause respiratory, gastrointestinal, liver, and neurological diseases in animals. Only 7 coronaviruses are known to cause disease in humans. Four of the 7 coronaviruses most often cause cold symptoms. The COVID-19 pandemic is an ongoing pandemic characterized by acute, sometimes severe respiratory disease in humans. This is caused by a new coronavirus SARS-CoV-2.

There exist other kinds of coronaviruses such as MERS-CoV which was identified in 2012 in the Middle East, while SARS-CoV-1 was identified earlier in different regions around the world. The new Coronavirus that the world is experiencing is an advanced version of the SARS-CoV-1. It was identified in December 2019, in the city of Wuhan, in China. According to the international society of infectious diseases (ProMED), more than 677 570 cases have been identified in the U.S.A, on April 16, 2020, with a mortality rate of 5.1%. The situation is nowadays less pronounced in China.

The COVID-19 has been characterized by Zhu, Zang & Wang (2019) and they show that SARS-CoV-2 is 75 to 80% identical to SARS-CoV and is closely related to bat coronaviruses. That’s why bats are considered as the primary vector for the virus. It can also be identified in animals like cats, camels, and cattle. This is usually called zoonotic transmission. According to researchers, a large majority of people who got the disease early on were linked to a live seafood and animal market in China.

What are the mechanisms of the Coronavirus transmission from one to another?

The first cases of COVID-19 may come from animals sold in the market and has mainly spread from person to person (see Sabir, Lam, Ahmed et al. (2016)). Usually, SARS-COV-2 spreads when an ill person coughs or sneezes. Sick persons can emit saliva from their mouth at 6 feet from their position. If you inhale them, it is possible to get the virus and get sick.

Another way to get the virus can come from touching an infected object or an infected person and therefore touch your mouth or nose. Several papers demonstrate that the COVID-19 can live for more than 4 hours on different types of objects. We can notice a lifetime of 4 hours on Coppers, 24 hours on Cardboards, and up to 3 days on Plastics.

Researchers have also documented Airborne transmission (demonstrating that the virus can live in the air for 3 hours and if you breathe the infected air, you can get the virus) and fecal-oral transmission (showing that virus particles can be founded in sick people’s poop).

Studies have also documented the possibility to get infected by COVID-19 even if one has not traveled or has not been exposed to a sick person and it’s not possible to identify the source of the infection. This is usually called the “community spread”. These cases have been identified in California.

There are also people who do not manifest the symptoms of the virus but can also be a vector of transmission. The risk of infection of the Coronavirus can increase with age. Children are less likely to be exposed to the virus, while people of over 65 are most likely to get severely sick. Also, people working or living in hospitals, or having a weak immune system are highly exposed to diseases. For example, people suffering from severe obesity, diabetes, asthma, cancer, heart diseases, etc.

What is the current situation of the coronavirus pandemic around the world?

According to the website Worldometers, at the date of April 17, 2020, more than 2,232,627 cases of COVID-19 have been identified with 153,296 deaths and 568,231 recoveries, which represents a mortality rate of 6.8% and a recovery rate of about 25.4%. The statistics from the World Health Organization (WHO) are slightly similar. Up to 113 countries, areas, or territories are concerned by the virus.

Europe and North America are the most affected zones in the world with 45% and 33.5% of confirmed global cases respectively, while Africa and Oceania are the less affected continents representing 0.9% and 0.35% of the global cases respectively. Even if Asia is the continent where the virus took-off, it’s only the third continent affected by this virus, representing only 15.9% of the global cases.

In terms of deaths, Europe and North America registered the largest number of death in the world which represents 62.4% and 25.5% of the total deaths respectively. In contrast, Africa and Oceania registered the lowest number of deaths, which is 0.66% and 0.05% of the total number of deaths respectively.

impact of coronavirus on stock market 2020 — Table 1: Comparison of the number of cases and deaths per continent (our calculations with the data of the website www.worldometer.info, April 17, 2020).

United States of America (USA) is the most widely affected country registering 31.3% of the total cases in the world and 24.1% of the total number of deaths. It is followed by Spain (8.4% of the total number of cases and 12.7% of the total number of deaths) and Italy (7.7% of the global number of cases and 14.8% of the global number of deaths).

We can also notice that 7 of the 10 most-affected countries in the world are from Europe, two are from Asia and the USA is the only one representing significantly the whole American continent. Ten countries represent 77.5% of the total number of confirmed cases in the world with 86.7% of deaths registered in the world.

Concerning the distribution of COVID-19 since December 31, 2019 to April 17, 2020, it can be observed that the number of confirmed cases has experienced an exponential evolution with an upward sloping shape from December 31, 2019 to April 01, 2020 but started to flatten since the beginning of April as reported in the following figure by the European Centre for disease prevention and control.

Statistics on Coronavirus worldwide — Figure 1: Distribution of COVID-19 cases, worldwide, up to April 18, 2020 (*European Centre for Disease Prevention and Control* )

In contrast, the number of deaths is still displaying an exponential evolution and the most represented countries are Europe, Asia, and America.

Statistics on Coronavirus worldwide 2020 — Figure 2: Distribution of COVID-19 deaths, worldwide, up to April 18, 2020 (*European Centre for Disease Prevention and Control* )

At the worldwide level, we are still on the upward sloping shape either in terms of the total number of cases or in terms of the number of deaths.

How has the Coronavirus pandemic affected the Stock Market and world economies?

With the outbreak of COVID-19, global stock markets have experienced a severe crash, beginning February 20, 2020 and lasting thru March 23, 2020. This global market crash is comparable to the Great depression in 1929, in the USA. Starting February 20, stock markets around the world registered the largest weekly decline since 2008. Global demand shocks and the crashing oil markets (due to the conflict between Saudi Arabia and Russia due to Russia’s refusal to curb oil production) has been another catalyst that led to a serious increase in the volatility and reaction in the stock market.

With the multiple risk factors of the Coronavirus pandemic, almost all the countries in the world have decided to impose a massive worldwide lockdown in order to enforce social distancing. A large majority of companies have shut down with employees working from home. Only some essential services are open to the public such as groceries, restaurants with delivery services or curbside pickup, hospitals, and doctors offices.

When taking a look at the main observed indexes in the global stock market, we can observe that the S&P 500 observed a drop of about 35% in almost 1 month. The Dow Jones has experienced a drop of 36%, which is approximately 10760 points loss for the period February 20 to March 23rd, 2020. The CAC 40 and Dax 30 are under pressure in Europe dropped by almost the same rate, which is 38% in the same period. The FTSE 100 in Japan has reported a collapse of 30%, while in India, the Nifty index dropped by almost 50%.

impact of coronavirus pandemic on S&P 500, DAX 30, FTSE 100, CAC40 — Figure 4: Evolution of the most observed indexes in the stock market during the crash 2020 (Google Finance)

The volatility index (VIX) has exploded and increased 432% during that period, signaling total panic in the markets. This explosion of the volatility was rapidly followed by a quick drop starting by March 23, 2020.

impact of coronavirus pandemic on dow jones and vix — Figure 5: Evolution of the VIX and Dow Jones during the stock market crash 2020 (Google Finance)

The airline sector has suffered tremendously. Airline companies around the world have canceled their flights. Shares of United Airlines and Delta Airline were down by more than 50%.

The International Air Transport Association (IATA), reported that worldwide airline passenger traffic will fall by 48% for this year due to the coronavirus pandemic. Projections estimate losses of $314 billion in revenues due to the severity of the COVID-19 pandemic, as business travel demand dropS and government travel restrictions increase. More specifically, Asia is projecting a loss of 50%, while Europe and America are estimating a 55% and 36% loss in passenger traffic compared to the third quarter of 2019, respectively.

Additionally, the World Trade Organization is projecting in the best-case scenario of about 12.9% and the worst-case scenario a drop of 31.9% in air cargo volume for this year. Furthermore, the industry is experiencing a liquidity crunch, with a cash burn of about $61 billion for the second quarter of 2020.

impact of coronavirus on the airline transport — Figure 6: Global trade forecast points to a steep decline in air cargo volume (World Trade Organization (WTO), IATA Economics, 09 April 2020).

In contrast to the airline industry, essential industries, are more resilient to the 2020 stock market crash. As essential industries, we have Health care, Food, basic transportation. Indeed, goods and services produced in these industries are more inelastic in the sense that the aggregate demand does not change significantly even if the economy is in recession.

For example, Vertex Pharmaceutical (VRTX) has reported an increase of 24% since January 2020. On the same line Walmart (WMN) and Kroger (KR) have gained an increase of 12.25% and 11.45% in the same period respectively.

Stocks that perform during the stock market crash — Figure 7: Some resilient stocks during the stock market crash 2020 (Google Finance)

Additionally, even if online-based companies such as Zoom (ZM), Amazon (AMZN), Netflix (NFLX), eBay (EBAY) have been impacted by the crash during the period February 20 – March 23, those companies have reported a quick recovery of their drawdown. For example, Zoom (ZM) has gained an increase of 42% since the beginning of the 2020 stock market crash. At the same time, Amazon (AMZN) and Netflix (NFLX) have gained 10.31% and 9.52% respectively. The other stocks I mentioned also follow the same pattern.

Where are we now and what can we expect going forward for world economies ?

According to the International Monetary Fund (IMF), the global economy will experience the worst recession since the great depression and this is the first time where developed economies and developing countries are in a recession.

Indeed, with great lockdown, the world economy may expect a decrease of global growth rates by almost 3% during the second quarter of 2020, representing a downgrade of 6.3 percentage points from January 2020, which is 30 times the effect observed during the global financial crisis in 2008 – 2009. These projections assume that the majority of countries in the world will experience their peak in terms of pandemic spread during that period.

In the best-case scenario in which the pandemic widespread is efficiently controlled, it can be projected that the United States, Eurozone, and Japan will experience a decrease of their GDP growth rate by 6%, 8%, and 5% respectively, while China and India might be the beneficiary of this crisis, reporting a positive GDP growth rate of almost 2% in 2020 (see IMF world Economic Outlook ).

In the worst-case scenario with more uncertainty in the controlling procedure of the health crisis, one may expect an additional loss of 3 percent for this year and eventually a fall of the world GDP growth rate of 8% in 2021 if the virus persists and this with hurt the financial conditions of all the countries around the world with the drastic increase of the global unemployment rate. These results were expected as it has been documented by Wang, Yang & Chen (2012).

Indeed, the authors document that a contagious disease doesn’t only affect the health and lives of people but also leads to economic growth stagnation, but it can produce abnormal returns in the biotechnology sector. On the same line, the European Commission produced a previous report estimating the macroeconomic effects of a pandemic in Europe using a quarterly macroeconomic model (see Jonung and Roeger (2006)). Indeed, the European Commission shows that the effect could experience a GDP growth rate drop in the range of 1.6% – 4.1%. Similar studies have been done for the United States, Canada, Germany.

impact of a pandemic on Macroeconomics — Table 3: Estimated output losses due to future pandemic (Jonung and Roeger (2006)).

Concerning Sub-Saharan Africa countries, it is expected that the COVID-19 pandemic will lead to a decrease in the GDP growth rate and that could reach the range of -2.1 to -5.1% in 2020. This is evaluated as an output loss between $37 billion and $79 billion, including trade and value chain. Additionally, this crisis could affect also the food security by reducing agricultural production by up to 7% and a decrease of good importation by up to 25% (See World Bank press release April 9, 2020). The oil exploitation and tourism sector have been also affected due to the severe reduction of external demand.

What are the expected long term major changes in the economy?

With the object of respecting the social distancing, the great lockdown has imposed a large majority of the population to stay at home. This sudden stop of the economy has pushed people to seek new ways to connect and hang out with their family and friends and even to connect with business partners.

On the same line, companies are looking for new ways to run their business. Video chat is taking off especially in America and Europe. For example, applications such as Google Duo, Nexdor, and Houseparty are experiencing a huge increase in their traffic (see Similarweb).

Indeed, these applications have gained an increase of 12%, 73%, and 79% respectively, in daily traffic since January 2020. On the same line, the new way to teach classes in schools is by using applications such as Zoom, Google Classroom, Microsoft Teams, Google Hangouts.

On the other hand, applications for delivery services such as Uber Eats, GrubHub, Delivery.com, Postmates, DoorDash, Caviar have also gained in terms of usage as the on-demand food is expected to increase and be a $365bn industry.

Applications for entertainment such as Facebook, Youtube, Netflix, and Whatsapp have also gained in terms of utilization. We expected that these internet activities will increase significantly in the aftermath of the crisis.

How to fix the 2020 stock market crash according to the economic theory and what are the government’s reactions?

As we already know, the infectious diseases do not affect only the health and lives of peoples but also the whole economy of all countries around the world, we expected governments to react at the macroeconomic level and response proportionally to the sectors suffering from this Health and Economic crisis. More specifically policymakers should think about not only monetary policies but also policies encouraging public spending in order to encourage the private sector to produce but also to stimulate aggregate consumption.

Indeed, according to the popular Taylor rule, in order to encourage production, Central banks should cute the interest rate so that private firms can take more credit and invest more and therefore recruit more employees. By increasing of employment rate it will lead to an increase in consumption. To boost more this approach, Central banks usually print more money in the economy by buying assets from the private banks and short term bonds from governments. This is called quantitative easing.

These strategies become more important when it is observed that the short term interest rate is closed to zero. This is the situation that most of the advanced economies are experiencing. Indeed, the interest rate in the United States and Canada is almost the same and is currently evaluated at 0.25%. We can observe lower rates and even negative rates in Europe. For example, the short term interest rate in France was reported at -0.36% in March 2020. Almost the same rate is observed in Italy, Germany, and other countries in the EURO Zone.

Additionally, policymakers in advanced economies have planned a recovery strategy which is mainly based on implementing a fiscal stimulus program. The main goal of this policy is to guarantee that even if there is a drastic increase in the unemployment rate, the aggregate consumption in the economy is sustained at a certain level. Currently, the United States, Canada, France, the United Kingdom, and Germany have already decided the amount to deploy for this program. For example, in the United States, Congress decided for a budget of $2.3 trillion stimulus bill to address the COVID-19 pandemic. In Canada, the budget for this purpose is evaluated at $75 billion. The main idea of this fiscal program is to offer a direct cash payment of $2000 per month during the pandemic period to all eligible persona and small businesses. In France, the package is evaluated at $49 billion, while in the United Kingdom the government is promising a budget of $430 billion and $810 billion in Germany.

Aside, the International Monetary Fund (IMF) is planning a lending capacity of $1 trillion to support the different vulnerable countries from this crisis and are encouraging official bilateral creditors to support their partners for these circumstances. Indeed, some bilateral creditors have prolonged the payment deadline of poor countries in response to this crisis Furthermore in direction of the developing countries and especially for sub-Saharan Africa countries, the World Bank deployed up to $160 billion in financial support for the next 15 months to reinforce their response to the COVID-19 pandemic. This financial support is mainly oriented to help vulnerable businesses and improve the public health reaction.

Conclusion

The pandemic is still ongoing and the uncertainty of the world economy and the stock markets is huge for these recent weeks. Even if we started to see a recovery in the stock market, the panic is still in the market with overreactions of market participants.

The airline industry is one of the most affected sectors while the biotechnology and tech industries are less affected. Moreover, China and India are the countries that will benefit the most from this crisis.

The governments in the advanced economies are already implementing the stimulus package. The problem is that this policy can only hold in the short term and not in the long term. This means that if there is more uncertainty in the world in terms of this pandemic duration, the economy can suffer more and we can have a second phase of the world recession and stock market crash.

Another concern is the capacity of developing countries to address this health crisis and economy recession as their economy is highly dependent on the importation, tourism, and oil price.

In overall, it is expected that all the countries would definitely experience a significant increase in the economy digitalization.

How does a zero-sum game impact investors?