Energy shocks and stock market returns under COVID-19: New insights from the United States

This study investigated the relationship between energy price shocks and U.S. stock market returns during the COVID-19 pandemic, spanning January 2020 to September 2023, incorporating alternative measures of energy price shocks and examining the asymmetric effects of positive and negative shocks. Using a two-step system GMM analysis with panel data from 2468 firms and 108,592 monthly observations, the findings revealed that energy price shocks generally enhance stock market returns, with financial, metals and mining, and oil and gas sectors benefiting from higher prices, while retail and technology sectors face profitability challenges due to increased costs. Positive energy price shocks exert more potent effects on returns than negative shocks, which tend to show muted or adverse impacts in certain sectors. The pandemic consistently depressed returns across sectors, with its interaction with energy shocks moderating these effects differently across phases. Sub-sample analysis shows heightened sensitivity to energy shocks during the early pandemic and recovery benefits for sectors like oil and gas. Additionally, small and medium-sized and non-US-based firms demonstrated greater vulnerability, while financially robust firms exhibited more stability amidst volatility. These findings emphasized the need for sector-specific policy interventions to mitigate risks, support vulnerable industries, and bolster economic resilience against external shocks.