Effect of COVID-19 Pandemic and Macroeconomic Factors on the US Capital Market

Abstract

The pandemic showed strong initial shock to the capital market. It has lasted over 20 months and is expected to continue in 2022. Test how the market responses to the COVID-19 cases now considering the economy recovery would be valuable to forecast the market's movement. In this paper, the effects of the COVID 19 pandemic and US economic performance on the S&P 500 index are analyzed. A time series analysis is conducted with a multivariate vector autoregressive model using data from Jan 22, 2020 to Oct 8, 2021. The analysis suggested that the market has mostly recovered and turns out less sensitive to the pandemic as the increasing COVID-19 cases show a negative causality while the treasury 10-year yield curve rate and foreign exchange rate show a much stronger causality.