Post-COVID Investing: Awaiting a New Dawn
As fitness enthusiasts, my wife Carole and I were in the years-long habit of visiting the gym every evening. Then COVID-19 came along. The gym went into lockdown, so I responded by purchasing inexpensive exercise equipment online and getting it delivered to our house.
Now we work out at home and we like it better that way. Our gym reopened on June 19, but I canceled our membership.
And there, in microcosm, is how the coronavirus pandemic has wrought permanent changes to consumer behavior. Multiply my decision by several million similar ones made by other consumers and you get an idea of how COVID-19 is permanently changing society and the economy.
Below, I pinpoint six economic segments that will witness new investment opportunities in the dawn of the post-COVID era. First, let’s review the past week and what to expect in the days ahead.
The Fed ups the ante…
Stocks closed last week with gains on better-than-feared economic data and expectations of new stimulus. U.S. retail sales in May jumped nearly 18%, the biggest monthly increase on record. The Federal Reserve also announced that it would expand its support of the credit markets by buying corporate bonds. Equities reversed the previous week’s losses (see chart).
Investors also were cheered last week by the White House’s announcement that it’s weighing a $1 trillion infrastructure plan. But don’t get your hopes up. I once served as a press secretary on Capitol Hill and I always marveled at how easy it was to shape the public debate by simply sending out a press release.
There isn’t time for Congress to put together and pass an infrastructure bill. We’re already in the summer season and the presidential election is only four months away. The two political parties are locked in bitter partisan warfare and have difficulty compromising on anything, let alone a massive infrastructure bill. Investors shouldn’t fall for empty political rhetoric.
So what’s driving the market? A major factor is TINA (There Is No Alternative). The yield on Treasury bonds is so low that stocks are an attractive alternative, even in the middle of a recession (see chart).
Affluent consumers have reduced their spending, which means they need to park their funds somewhere. With interest rates at rock bottom, the stock market has been a magnet for that money. But this dynamic can’t last much longer.
Investor exuberance right now is unwarranted and we’re witnessing an asset bubble. The boost from fiscal stimulus is waning and Congress is deadlocked on fresh stimulus. The rally is likely to end in tears.
An ominous portent occurred last Friday, when shares of Apple (NSDQ: AAPL) dropped after the tech giant announced that it was re-closing stores in some states due to rising cases of COVID-19. The broader markets fell that day on the news.
Future economic reports probably contain additional landmines. In the week ahead, keep your eye on existing home sales (Monday), the preliminary Purchasing Managers’ Index for June (Tuesday), initial jobless claims (Thursday), and personal income and spending (Friday).
Six Segments of Opportunity
Pullbacks over the near term are no reason for panic. When pandemic-induced uncertainty is behind us, huge opportunities await investors in the reconfigured post-COVID world.
Here are six ways the pandemic is unending the status quo and giving birth to new investment themes.
#1 Aviation. The airline industry has endured a severe beating and it will require months for the major carriers to recover. Even when the pandemic is over, aviation and the flying experience will never be the same. Therein lays opportunity.
Airlines are taking disinfecting and sanitizing more seriously than ever before. They’re also updating their legacy air filtration and air circulation methods and introducing new systems to ensure that their customers and employees are breathing the cleanest air possible. That spells big opportunities for the aviation vendors that provide these germ-fighting products.
#2 E-commerce. 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 e-commerce leaders have soared, as consumers stuck at home buy goods from their smartphones and laptops. We’re also seeing the inclusion of ultra-sophisticated technology, notably artificial technology, with online shopping.
#3 Robotics. Social distancing has generated greater use of robots, in retail establishments and factories. This trend will accelerate in the post-COVID world. Indeed, many workers laid-off or furloughed because of the pandemic will permanently lose their jobs to robots. These machines are adopting an increasing number of tasks in all facets of daily life; the pandemic is hastening this transition.
#4 Immunological vaccines. Immunotherapy is on the cutting edge of medical science, as researchers try to find ways to get the body to fight diseases by itself, eliminating the need for costly and painful techniques. Small biotechs with new immunotherapy drugs in the pipeline are poised for big gains. The pandemic has created an urgent need for a vaccine, putting immunotherapy on center stage.
#5 Cashless payment systems. The self-service retail market already was growing before the pandemic but now it’s exploding. Social distancing and lockdowns have created an even greater demand for remote payment services. According to Grand View Research, the global digital payment market was valued at $43.5 billion in 2018 and is expected to register a compound annual growth rate of 17.6% from 2019 to 2025.
#6 Mobile and virtual technology. The tech-heavy NASDAQ composite has rebounded to the greatest degree among the three major U.S. benchmarks (see table above). Silicon Valley giants 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 quarantines are over, consumers will be clamoring more than ever for these wireless conveniences in their personal and professional lives. The advent of super-fast 5G wireless will boost these capabilities. For our special report on 5G opportunities, click here now.
Stick to your goals and remain patient. The fundamentals are horrific, which means additional stock market sell-offs await investors before 2020 is over. But as the old saying goes, it’s always darkest before the dawn.
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John Persinos is the editorial director of Investing Daily. He writes Mind Over Markets, Monday-Friday.