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When Stock Prices Drop, Where Is the Money?

When stock prices fall, the money doesn’t disappear but flows to other markets or participants. In March 2020, Apple’s market value evaporated by about $400 billion. In January 2021, GameStop’s stock surged by 1914%, and Melvin Capital lost $6.5 billion. During the pandemic, Manhattan property prices fell by 15%, while prices in New Jersey and Connecticut rose by 8% and 10%, respectively. Bitcoin surged from $29,000 to $63,000 in early 2021, then fell to $30,000. Tesla profited $272 million through trading.

Decrease in Market Value

In March 2020, after the outbreak of COVID-19, the U.S. stock market experienced a historic crash. The Dow Jones Industrial Average quickly fell from a high of 29,551 points in February to 18,591 points on March 23, a drop of 37%. Apple’s market value evaporated by about $400 billion in one month, equivalent to the GDP of a small country.

Airlines were hit particularly hard. United Airlines’ stock price fell from $90 at the beginning of 2020 to $20 in April, a drop of over 75%. United Airlines laid off 16,000 employees and requested more than $5 billion in emergency aid from the government.

Ordinary investors also suffered greatly. According to The Wall Street Journal, in the first half of 2020, the average investment portfolio value of U.S. individual investors shrank by about 25%. For example, a retired man named John had $500,000 in retirement savings before the market crash, which dropped to only $375,000 after the crash.

Money Has Not Disappeared, Value Changes

Take the 2021 GameStop incident as an example. The company’s stock rose from $17.25 at the beginning of January to $347.51 at the end of the month, an increase of 1914%. Hedge fund Melvin Capital lost about $6.5 billion, while retail investors in the Reddit community made huge returns.

In 2020, under the influence of the pandemic, the real estate market in New York City fluctuated greatly. Zillow data shows that the median home price in Manhattan fell from $1.3 million to $1.1 million, a drop of about 15%. Investors moved funds to suburban markets such as New Jersey and Connecticut, where house prices rose by 8% and 10%, respectively. These data show that funds flow between markets, leading to changes in real estate market values in different regions.

The cryptocurrency market is similar. Bitcoin’s price was $29,000 at the beginning of 2021, peaked at $63,000 in April, and fell to $30,000 in July, a volatility of over 50%. Tesla bought $1.5 billion worth of Bitcoin in February and sold part of it at a high point, earning about $272 million. These data show that while the value changes, the funds flow between different market participants in the cryptocurrency market.

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Wealth Transfer

Take the 2021 GameStop incident as an example. The company’s stock rose from $17.25 at the beginning of January to $347.51 at the end of the month, an increase of 1914%. Hedge fund Melvin Capital lost about $6.5 billion, while Reddit community retail investors made huge returns.

The real estate market also experienced significant wealth transfer. In 2020, the pandemic caused a significant fluctuation in New York City’s real estate prices. The median home price in Manhattan fell from $1.3 million to $1.1 million, a drop of about 15%. At the same time, investors moved funds to suburban markets such as New Jersey and Connecticut, where house prices rose by 8% and 10%, respectively. For example, in Montclair, New Jersey, home prices rose by about 12% in 2020, much higher than the national average.

The cryptocurrency market also reflects wealth transfer. Bitcoin’s price was $29,000 at the beginning of 2021, peaked at $63,000 in April, and fell to $30,000 in July, a volatility of over 50%. Tesla bought $1.5 billion worth of Bitcoin in February and sold part of it at a high point, earning about $272 million. According to Forbes, MicroStrategy CEO Michael Saylor’s personal wealth increased by about $1 billion during the Bitcoin price surge.

Impact on Investment Portfolios

At the beginning of the COVID-19 pandemic in 2020, the global stock market crash led to significant investment portfolio shrinkage. According to The Wall Street Journal, the average investment portfolio value of U.S. individual investors shrank by about 25% in the first half of 2020. For example, retired John’s retirement savings fell from $500,000 to $375,000, forcing him to delay retirement and cut living expenses.

Tech stocks performed relatively well during the pandemic, but their volatility also affected investment portfolios. Tesla’s stock price rose from $86 at the beginning of 2020 to $705 at the end of the year, an increase of over 700%. Investor Sarah held 1,000 Tesla shares at the beginning of 2020, and her holding value soared from $86,000 to $705,000.

Real Estate Investment Trusts (REITs) also experienced fluctuations in 2020. Simon Property Group’s stock price fell from $145 at the beginning of 2020 to $42 in March, a drop of 71%, and rebounded to $86 by the end of the year. Investor Mark held 500 Simon Property Group shares, and his investment value fell from $72,500 to $21,000, rebounding to $43,000 by the end of the year.

Economic Effects

During the COVID-19 pandemic in 2020, the global economy was severely hit. The International Monetary Fund (IMF) data shows that the global economy contracted by 3.5%. The U.S. unemployment rate reached 14.7% in April, the highest level since World War II. The Wall Street Journal reported that U.S. GDP fell by 32.9% in the first half of 2020.

Manufacturing was hit hard. World Bank data shows that global manufacturing output fell by 11.2% in 2020. General Motors (GM) saw its revenue drop by 53% in the second quarter of 2020, losing $800 million. Supply chain disruptions led to component shortages and extended delivery cycles. Volkswagen’s sales fell by 15% in 2020, and profits decreased by 5.9 billion euros.

The tourism and aviation industries suffered heavy losses. The International Air Transport Association (IATA) reported that global air passenger traffic fell by 65.9% in 2020, leading to industry losses of $118.5 billion. American Airlines lost $8.8 billion in 2020, cutting 30% of its flights and laying off tens of thousands of employees. The United Nations World Tourism Organization (UNWTO) reported that global international tourist numbers fell by 74% in 2020, resulting in a loss of $1.3 trillion in revenue.

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