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On July 12, the S&P 500, the Dow Jones Industrial Average, and the Nasdaq Composite all hit record highs. The previous record highs were achieved the previous trading day, July 9.
The next week saw gains modestly pared, until July 19, when stocks plummeted. Before lunchtime, the Nasdaq Composite was down 1.7 percent, the S&P 500 fell by 1.9 percent, and the Down Jones Industrial Average shed 2.2 percent. Major news outlets cited COVID-19 jitters, and shareholders in companies that would be especially hard hit by another round of lockdowns, like airlines, and hotels, took a special form of pummeling.
By the end of the day, the Down Jones Industrial Average had its worst day since October 20, 2020. Headlines poured out blaming the spread of the delta variant and an uptick in COVID-19 cases amongst the unvaccinated.
Then, on July 20, stocks rebounded sharply. The Dow Jones Industrial Average soared by 550 points — not quite reaching its pre-July 19 heights, but getting pretty close. The S&P 500 essentially gained back everything it had lost a day earlier. The Nasdaq not only erased its Monday loss, it finished Tuesday half a percentage point higher than it ended the day on Monday.
Now the headlines proclaimed that stocks were recovering in spite of “COVID anxiety.” How could the prevailing views of the deadly delta variant and the massive shifts in COVID-19 risk calculation have changed so jarringly in just a single day?
Well, they didn’t. Sure, things that happen in the day-to-day news can affect the stock market, but not as much as you might think, and not really for the long-term. More often, what is happening is that financial writers have to write something about big changes in the major stock indexes, so they look around at what is going on in the world at the same time as the stock market movement, blame that, and get a few quotes from financial industry people who are doing the same thing. I’ve probably been guilty of that myself.
But the truth is, the vast majority of the time, we simply do not know why the stock market does what it does on a daily basis. It is far too complex a system for that. Even so, it is uncomfortable for human beings to acknowledge that the fate of our entire economy depends on a system that we do not understand and cannot fully explain.
At any rate, I can prove that it wasn’t an actual uptick in COVID-19 cases that led to the July 19 stock dip. The daily COVID-19 case numbers don’t come out until the following day, so any effect the actual updated number of COVID-19 cases may have on stocks would be slightly delayed. On July 17, 35,509 new cases were reported in the U.S. On July 18, 33,837 new cases were reported in the U.S. On July 19, there were 34,830 new cases — a slight increase from the previous day, but a stock trader would not have known that until July 20, when stocks saw huge gains. As far as someone trading stocks on July 19 knew, new COVID-19 cases were trending down in the immediate past, and the delta variant was certainly no more contagious on July 19 than it was on July 18.
If there was going to be a truly COVID-related stock dip over the past few days, it should have happened on July 20, once people knew that there had been a slight uptick in cases. Or it should have happened much earlier in July, when stock indexes were hovering near records but new COVID-19 cases were increasing far more sharply than they are now. The top one-day high for new cases so far this month was 40,853 on July 16.
Yes, there are still lingering concerns from many about the coronavirus, and yes, stocks go up some days and down others. Are those two things related? Probably, but mostly in ways that are far too complex for a human being to comprehend. We can say for certain that if the July 19 stock dip was related to COVID-19 fears, those fears were irrational, because they should have logically come on a day when COVID-19 cases were known to be steeply climbing rather than slightly falling.
So maybe we should stop pretending, after-the-fact, that there are easy answers and that we can clearly explain why the stock market did what it did. If we were that good at explaining the behavior of the stock market, we’d know beforehand what it was going to do rather than always scrambling to come up with the rationale afterward.
Jonathan Wolf is a civil litigator and author of Your Debt-Free JD (affiliate link). He has taught legal writing, written for a wide variety of publications, and made it both his business and his pleasure to be financially and scientifically literate. Any views he expresses are probably pure gold, but are nonetheless solely his own and should not be attributed to any organization with which he is affiliated. He wouldn’t want to share the credit anyway. He can be reached at jon_wolf@hotmail.com.