How to Survive the Economy’s Mass Extinctions
“The world will not be inherited by the strongest, it will be inherited by those most able to change.” — Charles Darwin
Like a meteor smashing into the economic landscape, the coronavirus pandemic will ultimately result in a wave of extinctions among companies unable to adapt to the new climate.
The winning companies in a post-pandemic world will occupy such industries as renewable energy, remote technologies, robotics, and e-commerce. The dying dinosaurs will be found in such segments as shale oil production, cruise ships, shopping malls, and department stores.
Through it all, as I explain below, one asset class will prevail. First, let’s survey the still-unfolding economic dislocation.
The specter of deflation…
Stocks on Wednesday closed sharply down, as the battle against COVID-19 sapped the market of optimism. Pessimistic remarks from Federal Reserve Chair Jerome Powell didn’t help, as he called for greater fiscal stimulus. Problem is, Congress and the White House are currently stalemated along partisan lines on any new stimulus package. The Dow Jones Industrial Average shed 2.17%, the S&P 500 lost 1.75%, and the NASDAQ slipped 1.55%.
As of this writing Thursday morning, risk-on assets were extending their losses and the three main U.S. indices were trading deeply in the red. So far this week, the Dow is down about 6%.
Investors were further unnerved today by the latest jobs data. The U.S. Labor Department reported this morning that a total of 2.981 million Americans filed unemployment insurance during the week ending May 9, exceeding expectations of 2.7 million new claims. The new claims brought the total to 36.5 million over the past two months, levels of joblessness unseen since the Great Depression.
The economic news has been consistently grim. The Labor Department reported Wednesday that the U.S. Producer Price Index (PPI) declined 1.3% last month, the most since April 2009. In the 12 months through April, the PPI decreased 1.2%, the biggest drop since November 2015. The plunge in economic activity caused by the coronavirus is generating deflation, a corrosive phenomenon that afflicted world economies in the 1930s.
It’s bad overseas, too. European Union officials on Wednesday reported that industrial output in March in the euro zone (the 19 countries that share the euro as a common currency) was 11.3% lower than in February. That was the largest month-to-month decline since records began in 1991. Italy experience the largest drop in output, at 28.4%.
Italy may boast an inimitable sense of style, but right now it is an economic basket case. Italy is the third-largest national economy in the euro zone and the eighth-largest in the world. The country also is deeply in debt and politically dysfunctional. It could be one of the first European dominoes to fall, triggering global financial contagion.
Around the world, economic recovery will be long and painful due to the massive loss of individual income (see chart).
The COVID-19 pandemic is expected to wipe out 6.7% of working hours globally in the second quarter of 2020. Workers in the travel, leisure and hospitality industries are getting hit particularly hard.
Survival of the fittest…
Amid these multiple woes, if you’re looking for sleep-well-at-night investments, consider an asset class with a history of weathering severe crises: dividend stocks.
The right dividend stocks can provide you with growth, income and safety. That’s because companies with stable and growing dividends by definition have strong balance sheets and stand the best chance of outlasting economic downturns.
However, not all dividend stocks are created equal. Many struggling companies are currently cutting or suspending dividends, due to coronavirus-induced hardships. That’s why you need to perform extra due diligence when looking for dividend stocks.
The experts at Investing Daily pick dividend stocks based on whether it’s reasonable to assume they can continue growing their dividends over time. In our selection process, the focus is on companies with long-term track records of consistent dividend payments, low debt, ample free cash flow, attractive yields, and reasonable growth prospects. These qualities all ensure long-term endurance, even during crises such as the one we face today with COVID-19.
To demonstrate how these criteria work in practice, we’ve put together a list of the very best dividend stocks available. They’re your antidote to coronavirus anxiety. To get instant access to our list of durable high-yielders, click here.
John Persinos is the editorial director of Investing Daily. You can reach him at: firstname.lastname@example.org