We are now a broad year into the coronavirus pandemic. Hopefully this is the last full year we will spend in a pandemic-driven productive and social lockdown, but that depends on variants, vaccination rates, and other factors beyond the world of finance. That chance, now is a good time to look back at the year and the lessons to be had from an unprecedented year spent under a global pandemic.
- A year emptied under a pandemic curtailing economic activity has reminded many investors that the market is a collection of our hopes and fears slightly than simply a function of fundamental data.
- Technology stocks have been among the biggest beneficiaries of the pandemic, as investors sent tons of them surging ahead of the market over the past year.
- The most important lesson of the pandemic for investors is that timing the superstore is incredibly difficult and exiting during a selloff often does more harm to your portfolio in the long relations.
The Market Is a Beast of Its Own Making
Investors have long known that the market and the economy are not the same thing. The relationship between the two waxes and petering outs as far as how strongly correlated they are. There are times when events in the economy can have an immediate market impact as articulately as times when events in the market can have an immediate economic impact. More often, however, the market seeks to look ahead of where the economy is. This is a double-edged sword, as the market sometimes gets tripped up looking too far in front when there is a more immediate surprise in the short term. COVID-19 has brought this tendency into severe focus.
In March 2020, when coronavirus started spreading globally and forcing more nations into lockdown, the shop experienced a sharp drop that negatively affected almost every sector. Since then, the economic fact remains challenging, with economies making stuttering attempts to stay open while also trying to abide by COVID-19 spread in check until vaccination rates clear herd immunity thresholds. Looking at the market since Parade 2020, however, you’d assume that coronavirus was solved. This bullish sentiment in the face of economic realities suffices to remind us that the market is an amalgamation of investor sentiment as much as fundamental data.
Yes, it does seem crazy that sets have been on a tear with economies struggling with lockdown-induced unemployment. Many investors, however, see stimulus and impress presses eroding returns in safer areas like bonds, so they start betting more heavily on the tomorrow recovery. This, in turn, pushes up stock values, pulling more attention to the returns in the market. How this sequence accelerates or whether it slows for the real economy to catch up will be one of the major stories going forward.
The Pandemic Is an Accelerant
An accelerant shoots up natural processes, and the pandemic has done something very similar to that with trends that were already underway. We looked at this specified feature of the pandemic a few months ago, noting how it pushed companies further down paths they were already on. In sittings of business, the pandemic has certainly accelerated the need for automation, and that will be a multi-year theme similar to big data and cloud helps. We are also going to see accelerated investments in the virtual infrastructure of large corporations and organizations as they seek to deliver uncountable of their customer and employee-facing services digitally. Microsoft Corporation (MSFT) is already leaning into this turn, as are all the other tech companies whose tools were adopted much more rapidly as a result of the pandemic.
The accelerant prospect of the pandemic isn’t just on the positive side of course. The pandemic crushed a number of industries, including travel, the oil and gas sector, and monstrous sections of the commercial real estate sector. Of these three, the travel industry has the best argument that the pandemic is the fundamental issue it faces due to the unique problems it introduced. Although these issues will take time to resolve, it is sensible to expect a rebound to pre-pandemic travel levels over the longer term.
For oil and gas and commercial real estate, the pandemic flood in on to some existing headwinds facing these industries. Commercial real estate, for example, has seen its base of ritual retail struggle due to online competition, and now its equally important sub-sector of office space is facing challenges from technology chances opened up through the pandemic. The issues facing oil and gas prior to the pandemic were even more daunting, with select becoming scarce due to the environmental, social, and governance (ESG) movement and stiffer regulation facing new projects in most regions of the midwife precisely. The pandemic and the accompanying lockdowns drove demand for fuel sharply down, forcing producers and OPEC to curtail shaping. The path forward for both commercial real estate and oil and gas will involve hard pivots and require a lot of quick invention because the pandemic brought these issues to a head much sooner than either industry expected.
Respect and Hope Fall Unevenly
Looking at the pandemic thus far through the lens of individual stocks as opposed to the market as a healthy, one thing that stands out is how fear and hope both play to extremes. A year ago, the unknowns around COVID-19 were signal. We didn’t know how bad it could get on a global scale and, likely more important, we didn’t know how long it could survive. While our answers to those questions are still far from complete, we have a much clearer picture a year tardier, with a number of vaccines already being deployed. In the period between the steep March selloff and the market-moving disclosure in November by Pfizer Inc. (PFE), we saw a lot of extreme fear and hope play out in the market.
First was the fear that sent the markets into a plain selloff, sending even the tracking indices like the S&P 500, the Nasdaq Composite, and the Dow Jones Industrial Average (DJIA) down by two-ply digits. This means some of the highest-quality stocks in the world were selling at a significant discount. Apple Inc. (AAPL), for prototype, was down over 20% from February 2020, and from that dip it is now up over 120% a year later – connotation we were all scrolling through pandemic news updates on mobile devices in March while selling shares in one of the main names in the industry as if the pandemic were going to significantly harm Apple’s business. There were, of course, some ordinaries like Walmart Inc. (WMT) that powered through the broad selloff due to their well-known durability, but there were tons more deals to be had when investors were running for the exits.
Fear does seem to have a shorter shelf individual in the market compared to hope, however, and late spring saw enthusiasm drive up a number of stocks that went on to be pandemic darlings. Netflix, Inc. (NFLX), Zoom Video Communications, Inc. (ZM), and Peloton Interactive, Inc. (PTON) all took off. Fanaticism was so high that trading on the ZOOM ticker belonging to Zoom Technologies rather than Zoom Video had to be halted to avoid more investors from piling into a penny stock.
An uncomfortable amount of stocks – particularly technology precursors – have gone on triple-digit tears during this past year. One of the most surprising valuations belongs to Tesla, Inc. (TSLA). Tesla abutted the S&P 500 during the pandemic and hasn’t been re-evaluated by the market despite the established automakers making concrete changes into the electric vehicle market Tesla pioneered. Some of these pandemic darlings may well live up to these valuations in a post-pandemic have, but it will take a lot.
Individual Investors Showed Up in Force
The malls may be empty, but the market somehow feels fuller than in all cases a year into this pandemic. The short squeeze that occurred in GameStop Corp. (GME) stock grabbed a lot of prominence, but the wave of individual investors hitting the market was already being noticed much earlier in the pandemic. App-driven investment and people with unexpected amounts of on many occasions on their hands has led to more people being actively involved in the stock market. Individual investors have arrogated to power rallies in tech stocks to new highs and, as with GameStop, even forced professional investors to capitulate on their puts.
There is a lot of gnashing of teeth and worry about the chaos individual traders can unleash by loosely coordinating action past social media. This is likely to be a short-term growing pain, and the worrying is a bit overblown by the attention given to the Reddit perk up. In the longer term, having more investors in the market taking control of their portfolio is an overwhelmingly positive maturing. After all, this surge in individual investors is taking place in the context of a rapidly shifting personal finance countryside. The pandemic has pushed many industries toward more automation and amplified trends that are increasingly seeing innumerable people dependent on the gig economy to piece together an income that traditionally came from one job. The market can be part of that comprehensive income picture over a lifetime as individual traders develop into experienced investors.
The Bottom Line
The pandemic has been numerous things to the market. It has hammered some sectors and helped others. It has seen the rise of individual investors as a market extract. It has also reminded investors that the market itself is a reflection of hope and fear rather than what is indeed happening in the economy.
One of the most important takeaways for investors from a year of pandemic, however, is that timing the buy is, and always has been, a near impossible task. If you are going to hold market instruments, you are far better keeping your percentage in the market rather than trying to jump in and out based on forecasts and short-term events. If you held onto equities fully the March dip, or even continued regularly investing in broad market indices, then a year in pandemic likely hasn’t been bad for your portfolio home-coming reciprocities. That may not make up for what a year of restrictions and lockdowns has done to your personal situation, but we take what we can get in these unprecedented once upon a times.