The coronavirus pandemic has caused a market crisis that has not been seen since The Great Depression, which decimated retirement plans for some and created a great opportunity for others. The initial “V-shaped recovery” has been optimistic at best, and a second wave could perpetuate a “W-shaped recovery” if we see more blockages.
If we look at the market from a bird’s-eye view, it is useful to identify the sectors that may be adversely affected, as well as those that may even benefit, should another COVID-19 outbreak occur.
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3 sectors that could suffer
These three sectors are directly in the sights of a second wave.
1. Discretionary consumer
Additional unemployment claims, along with expiring unemployment improvements, simply mean less disposable income available to spend. It is necessary to avoid a sector that derives its long-term value from the availability of excess income by consumers to buy non-essential goods if we approach another closure. An example of the potential impact for the sector is the postponement of home improvement projects, which affect actions such as House deposit and Lowe’s. General retail stores like objective and textile companies like Nike they also tend to struggle during periods of cyclical weakness.
2. Transportation
Travel companies, especially airlines and cruises, saw sharp declines in share prices during the initial market crater in March, but have since recovered. A second wave of coronavirus could easily send transport stocks to their previous lows, especially given the high fixed costs and low profit margins associated with operating an airline or cruise company. Airlines seem to lose their appeal pretty quickly once we realize there is little point in blowing up empty seats or crossing empty beds around the world.
3. Energy
With fewer air travel, manufacturing and industrial activity, energy is in a precarious position: just a few months from oil prices near $ 10, we have seen a recovery in which prices have risen to just under $ 40 By context, just a decade ago, many Wall Street companies were forecasting $ 200 oil with an apparently untouchable ceiling, increasing understanding of how much the price dynamics have changed over time. In short, the sector seems too volatile and dangerous to participate in the next 12 to 18 months.
3 sectors that could benefit
These three sectors are likely to get a boost if a second wave or crash comes to light.
1. Basic consumer products
Companies selling essential goods must maintain stable earnings during a possible second wave. Examples include CVS (NYSE: CVS), Walmartand Target; These companies have the inventory, store counts, and digital presence necessary to weather another prolonged slowdown. Furthermore, investors can find safe haven in companies that have shown steady but not dramatic growth, an indicator of prudent capital management and the ability to maintain reasonable income targets. An interesting back story is that CVS has added more force through its acquisition of Aetna in 2018, giving it access to a significant network of plan subscribers. CVS also operates a fleet of MinuteClinics, which provides highly accessible healthcare to clients who would not otherwise be able to see a private provider.
2. Technology
The culture of working from home, another consequence of our rapidly changing society, has created countless opportunities for technology companies to solve the new problems of everyday life. A second wave of coronavirus would almost certainly compel organizations to further consider that some or all of their respective workforces operate remotely. My wife, who is a special needs educator at a newly created school, has become completely fluent in Loose (NYSE: JOB) – I am particularly impressed with how the program can streamline and optimize workforce collaboration and I think it is here to stay. Slack is debt-free and could be an attractive acquisition target in the future, but today it is a revolutionary company that may soon be the new darling of the tech sector.
3. Health care
With a second spike in the virus, markets would be especially sensitive to health care news, as we saw during the first wave. Healthcare companies have already started innovating in many ways, with advances in telemedicine readily visible, but the greatest innovation will come as companies move closer to a reliable vaccine. However, the strongest reason to be optimistic in the sector has to do with its stability during difficult periods of the economic cycle. Companies like Johnson and Johnson and Pfizer They have been dividend aristocrats for decades and will continue to persevere through a second wave. Healthcare is not entirely recession-proof, as non-urgent and elective procedures can be postponed, but the core of the industry will continue to exist in a position of strength.
The impending second wave definitely induces anxiety, because Of course There is a second wave, but we can build a type of portfolio insurance by overweight sectors that are likely to resist any economic environment (consumer staples, healthcare). The technology sector, in the midst of a second wave, will have the opportunity to capitalize on a rapidly changing society, and will continue to exert influence in all aspects of life. A recommended way to achieve these exposures is to focus on industry indices, which can dampen the daily volatility of individual stock ownership. However, as the virus ends up behaving, we can take this opportunity to take a closer look at our portfolios and ensure that our risk exposures are in line with our respective risk tolerances.
