The daily headlines continue to bombard us with a steady stream of terrifying news on the COVID-19 pandemic. Since the novel coronavirus popped up back in January, it has wrought unspeakable havoc on multiple countries and the global economy. Stock markets around the world have swooned as entire industries such as airlines, tourism, and hospitality have suffered staggering losses due to lockdowns and restrictions on movement.

Retailers lament a drop in the number of customers shopping in malls, while social distancing measures limit the number of diners within cafes and restaurants. And even companies that have not been in the direct line of fire have suffered knock-on effects. Although the latest Bureau of Labor statistics showed that the core U.S. unemployment rate fell from 10.2% to 8.4% in August, the number of jobless people actively looking for work still stood at a staggering 13.6 million.

With the pandemic situation growing steadily worse in countries such as India, and rebounding upward again in Europe after some successes at containment, the possibility looms that many countries will have to return to lockdown conditions. Some already have done so. Is another market crash on the horizon?

Lady thinking with hand on her chin

Image source: Getty Images.

Fear and panic

Consider the sharp stock market decline that occurred back in February and March. The Dow Jones Industrial Average and S&P 500 Index sank by 36% and 31%, respectively, from where they began the year. There was widespread fear and panic as people began to grasp how debilitating COVID-19 would be to the economy, businesses, and people's health.

Economic bellwether Caterpillar (CAT 1.35%) plunged by 39% -- and though its shares are about back to flat for the year, the pandemic has caused the heavy machinery company's sales to decline for nine straight months. Big banks suffered too; shares of Goldman Sachs (GS 0.14%) slumped by 42%. It, too, is back near parity for the year, but in July, it lowered its already-downbeat economic forecast for the U.S., citing the sharp rise in new COVID-19 cases around the country.

Even tech giant Apple (AAPL 1.30%) saw its share price tumble by 30% to its 2020 low back in March, though it has since gone on to hit new all-time highs. The magnitude and speed of those declines, however, was a reflection of the level of fear and uncertainty that dominated this spring. Given the latest stream of negative news, could the market be headed for another crash of similar magnitude? 

The more we know

First off, let's take a quick look at the major events that have transpired since March. Scientists have gained a much deeper understanding of the COVID-19 coronavirus and how it works, its effects, and its incubation period. An unprecedented number of healthcare companies and research teams are working feverishly (and with massive financial help from governments and nonprofits) to develop effective vaccines. If that process is successful, it will cut years off the normal vaccine R&D process. China and Russia have even announced that they are approving locally developed COVID-19 vaccines even before their clinical trials are completed, and rolling them out for use.

By now, though, many people have become resigned to the coronavirus. News about daily case numbers surging or treatment candidates that disappoint no longer produces as much of an emotional response to our desensitized nation. Even the stock market has recovered and set new all-time highs.

The Fed to the rescue

Investors should recognize that the powerful Federal Reserve does not just sit idly by when economic meltdowns occur. During the financial crisis of 2008 and 2009, the Fed unleashed an unprecedented amount of liquidity (known as "quantitative easing") by buying up long-term U.S. Treasuries, as well as slashing benchmark interest rates to near-zero to stimulate the economy.

This time, it has pledged to keep the fed funds rates near zero once again until inflation rises to a level above 2% for an extended period. There have been indications that the Fed could hold its benchmark rates at their current ultra-low levels through 2023, or at least until the economy shows clear signs of recovery.

Getting used to COVID-19

It's likely that more people will gradually become more desensitized to news about the pandemic; meanwhile, businesses are also finding ways to adapt. Many companies have shifted their business models to a focus on digital ordering and e-commerce, thereby mitigating the impact of store closures and reduced foot traffic.

With the Fed ready and willing to pump prime the economy, it would take a much more sensational or unexpected piece of news -- or series of events -- to incite another stock market crash. With the facts as they are now, it seems highly unlikely that we will revisit the lows we witnessed in March.