When Lockdown Ends: The Brave New Economy
I’m an avid hiker, with the Appalachian Trail my preferred stomping grounds. Sometimes while hiking in the forest I’ll witness the dispiriting aftereffects of a fire. But the following year, upon my return, I’ll see vibrant green sprouts pushing through the blackened earth. Such will be the post-pandemic economy.
Beneficial change often requires destruction. When the pain of COVID-19 subsides, we’ll see the emergence of many exciting investment themes that didn’t exist before the outbreak. I’ll examine a few of the salient opportunities below.
Meanwhile, even though job losses are mounting, the stock market continues to rise. The three main U.S. stock market indices closed sharply higher Thursday, with the tech-intensive NASDAQ composite in positive territory for the year. As of this writing Friday morning, the three indices were trading in the green. The major averages are on track for their first weekly gains in three.
Investors are shrugging off the bleak jobs data. The U.S. Labor Department reported Friday morning that a record 20.5 million jobs were lost in April, with the unemployment rate soaring to 14.7% from 4.4%. Unemployment stands at a post-World War II record.
Bracing for setbacks…
Don’t get impatient. The pandemic isn’t behind us. The recent stock market rally has been impressive and yes, we face a new world of opportunities when businesses are allowed to reopen.
However, regarding the current upswing in stocks, historical precedent is ominous. During the Great Recession of 2007-2009, we witnessed 10 bear market rallies (see chart).
Some political and industry leaders are clamoring to immediately ease social distancing, but infectious disease experts warn of a possible second wave of coronavirus hitting in the autumn. Successive waves are likely to be deadlier, as the virus mutates into a more virulent strain. That’s exactly what the world experienced with the Spanish flu of 1918-1919.
Another wave of infections and deaths could cause the market to retest its March coronavirus lows. An underwhelming pace of consumer consumption, as businesses reopen, is another risk to equities.
When lockdowns end, consumers won’t necessarily be in a big rush to spend money and mingle in crowds again. Low interest rates aren’t enough to get people to spend when they’re afraid for their lives.
This pandemic is leaving permanent scars. The world won’t be the same. And for investors, that can be a good thing.
Rising from the ashes…
Many of these permanent changes to daily life will benefit certain sectors of the economy. Now’s the time to dip your toe into these sectors, modestly and with stop loss orders to limit your downside risk.
The tech-heavy NASDAQ composite has rebounded to the greatest degree among the major benchmarks, as Silicon Valley stalwarts post better-than-expected first-quarter earnings. These giants also are poised to reap the spoils of a new economy that’s being born during quarantine, i.e. an accelerated adoption of mobile and virtual technologies.
Millions of workers are getting accustomed to WiFi teleconferencing and other remote technologies. When quarantine is over, they’ll be clamoring more than ever for these conveniences in their personal and professional lives.
Another industry positioned to take off in the post-coronavirus world is robotics. Social distancing, combined with massive unemployment, is expediting the adoption of robots in the workplace and home. Robotics already was a big investment theme and the pandemic has given it more impetus.
Also giving birth to a new economic reality is the collapse of the energy sector. We recently witnessed crude oil trading at below $0 per barrel, as the virus-induced recession destroys energy demand. The oil and gas industry has reached an inflection point and will be increasingly supplanted by renewable energies, such as solar and wind power.
The solar industry will not see its fortunes diminish in the face of cheaper fossil fuels because solar now moves along its own supply-and-demand dynamics, with high productivity.
It doesn’t matter if oil remains dirt cheap. Solar’s customers are increasingly dependent on inexpensive, reliable power from the sun and see no reason to switch.
I expect the solar industry’s appeal to last for decades, as the U.S. and major developing countries such as China plow considerable resources into renewable energy and the price of photovoltaic cells continues to plummet.
Breakthroughs in e-commerce technology will be another part of this new economy. E-commerce already was a huge trend, of course, but sales for companies such as Amazon (NSDQ: AMZN) have soared, as consumers stuck at home buy goods from their smartphones and laptops. We’re seeing the inclusion of ultra-sophisticated technology, notably artificial technology, with online shopping.
Quick personal aside: I hate to shop but, after our local gym was closed, I went online to buy a stationary exercise bike and had it delivered to our home. I love the bike and I also appreciated the convenience of procuring it with just a few keyboard strokes. I suspect that I’ll be turning to online shopping with greater frequency than before.
Rest assured, from the COVID-19 ashes, shoots of new growth will emerge. But as I’ve learned from my mountain hikes, nature must first run its course.
Safe moves to make now…
I’ve just outlined a few winning investment themes for the post-lockdown economy. But there are even safer ways to make money. My colleague Jim Fink has mastered these methods.
Jim Fink is the chief investment strategist of the premium trading service, Jim Fink’s Inner Circle. Jim has developed a way to quickly and predictably multiply the gains of regular stocks.
Jim has put together a new presentation, in which he discusses how to generate outsized profits, regardless of the pandemic. Want to build wealth and also sleep better at night? Click here for details.
John Persinos is the editorial director of Investing Daily. You can reach him at: firstname.lastname@example.org