Response to COVID-19: Assessment of the Bubbles in U.S. Stock Market

Abstract

At present, COVID-19 pandemic has profound influence on every aspect of human society. Due to economic globalization, the pandemic exert negative impact on real economy of all countries, and inevitably lead to higher unemployment rate. International stock market also fluctuate frequently. However, uncommon phenomenon has been noticed in the U.S. stock market. After 3 days' market crash in March, 2020, the US stock has kept trading higher. Therefore, this research identifies the current stock market's opportunities and risks under the background of the global pandemic situation. Some investors contend that in the stock market there lies great opportunities, owing to the negative effects of periodicity and pandemic, while others claim that it is the fake boom that releases wrong signals for investors due to the Fed’s policy. Through the research on GDP and employment rate under pandemic, FED’s intervention under pandemic and further impacts, the impact of real estate on the stock market, and stock index, this study aims to explore whether there lies a potential stock market bubble under its current prosper appearance. The results indicate that the U.S. is suffering from a high unemployment rate, potential great GDP loss, stock market bubbles, high inflation rate, the risk of overvaluing, etc. This study reveals that a bubble exists in the U.S. stock market. Therefore, the investors need to recognize the potential risks and conduct a reasonable portfolio.