Stock and Fallow Changes During COVID-19 Pandemic

COVID-19 put the world in severe circumstances concerning healthcare and the economy. It adversely affects the livelihood and wellbeing of people all around the world. More than 3 million individuals have died due to coronavirus infection since the pandemic’s beginning. Many people lost their jobs because of staff cuts, while small businesses could not operate without governmental macroeconomic incentives aimed to support them. The health policies introduced to contain the virus spread were the main determinants for stock markets’ reactions. Although COVID-19 became the worst economic crisis since the Great Depression, the stock markets’ reaction was strange. In the beginning, they were ignoring the problem, then dropped prices following the panic, and now behave in a way like there will not be serious consequences.

Stock and flows are two main elements in line with feedback of dynamic systems theory. Stocks can be defined as accumulations determining the system’s state and providing needed information to use in decision-making. For example, the number of workers the firm employed is its stock; thus, it is the quantity of materials or resources. On the contrary, flows alter the stock by increasing or reducing its numbers. In other words, they represent the rates of system change. For instance, the rate of quits and retirement decreases the stock (outflow), whereas a higher hiring rate works as a positive inflow. The pandemic naturally affected both inflows and outflows, since it influenced every stage of business activity.

When assuming that firm’s stock is the number of products in inventory, its inflow would be production, whereas shipments would constitute outflows. The pandemic had limited supplier chains and restricted the movement of goods/materials and workers worldwide. This situation made manufacturers decrease production rates and deal with significant delays. Customers also changed their behavior by preferring online shopping and direct shipment instead of conventional physical stores. The reorientation and adaptation to new methods of selling and delivery were often accompanied by lower shipment rates for a particular period. This simple example reveals that the pandemic triggered various changes to how a business operates and influenced every input to its stock. Modeling and systems approach became even more essential to generate needed information, analyze it, and then act.

In general, COVID-19 has already shaped the movement of crude oil prices and major stock indices as NASDAQ Composite, S&P 500, and DJI. The volume of stock trade continues to rise due to positive expectations related to vaccination, normalizing the situation in the near future. According to Domm (2020), in December 2020, the S&P was 65% higher than it was in March. It means that stocks are recovering faster than the economy itself. Currently, investors believe in recovery and have less fear of buying stocks. Nevertheless, they should rely on fundamental analysis based on the practical market theory, market psychology, and stock price variables to make the best decisions possible.

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