After the collapse of the decade-long bull market, it has recovered about half of its losses. The recovery has been based on optimism. The Fed reduced interest rates and provided a unprecedented financial easing package. Congress passed their $2 trillion stimulus bill what hopefully has avoided some of the bank and corporate handouts that slipped into the one ten years ago. But, the avalanche of terrible earnings reports has only started to arrive. A shock to the market happened the other day when it was clear that Warren Buffett had dumped all of his airline stocks. Buffett’s said these businesses will be changed into the distant future. How will the pandemic change the economy in ways? Will it do so in ways that will destroy previously stable industries? This is a question for both short term traders and long term investors.
How Will the Pandemic Change the Economy?
Market Watch writes about a trap awaiting the stock market in the next months. Their thinking is “at all of the good news has been squeezed out of the tube of toothpaste!” These bits of good news include “unprecedented stimulus, an inevitable curve flattening in U.S. cases and deaths, reopening plans and optimism over remdesivir clinical trials.”
Summer could bring “hard economic data collapsing like we’ve never seen before, terrible corporate guidance, stories of pending bankruptcies,” and a second wave of layoffs that will hit the white-collar sector, warned McElligott. Rising trade-war rhetoric from the White House as a presidential election campaign heats up could present more risk, he added.
“That’s why I think folks are getting ready to hit the wall again, with this idea we’ve moved out of stabilization and now we’re back into the harsh reality of what this is,” without having a Federal Reserve boost and no more stimulus checks until things get a lot worse, he said.
These folks look to the fall as a time of market recovery but only after a fall in stock prices this summer. Their thinking is that as the pandemic persists, or even worsens, it will negatively affect stock prices..
Which Business Models Won’t Work Any More?
The pandemic will go on for at least two more years if there is no vaccine or medicine to will kill the virus. If it then mutates and comes back every year, the effects on society and the economy could become permanent. This would give us a world in which travel is curtailed. Cruise lines, airlines, travel agencies, and vacation spots will no longer have sufficient customers to stay in business in their current forms.
If social distancing becomes a way of life, restaurants, casinos, bars, and sporting events will all find it hard to remain profitable with smaller customer bases. When no one can travel by car, plane, train, or bus, the consumption of gasoline and will drop and keep the price of oil down into the distant future.
Online business will likely become increasingly dominant as will those that deliver or do “curbside” service.
Thinking about how the coronavirus will reshape the economy will help traders and investors make the most profitable decisions going forward.