COVID-19, Macroeconomic Shocks, And Stock Market Returns

We employ a structural vector autoregression (SVAR) model to analyze how macro disturbances on inflation, global supply chain, and industry production influence the U.S. stock market returns. We find stock market returns are significantly negatively related to the risk premium shock and monetary policy shock. The forecast error variance decomposition of stock market returns reveals that risk premium and monetary policy shocks jointly account for 95% of the variation in stock market returns.  Monetary policy shock influences stock market returns more than any other macroeconomic shock.  Industries dealing with essential goods are relatively less sensitive to macroeconomic shocks.