The coronavirus pandemic and its panoptic impact has left an indelible mark on the global economy with global markets rattled, businesses shuttered and lost jobs. The outbreak has disrupted the American economy significantly, with major sporting events, conferences, concerts and St. Patrick’s Day parades being called off or put on indefinite hold. In fact, the outbreak has started to take a toll on consumers and as a result of which the economy may contract in the first two quarters of this year. Consequently, the coronavirus-induced crisis that initially resulted in immense volatility in the financial markets is casting a cloud on the economy.
Last week, stocks took a serious beating, which wiped out Dow’s stock market gain of three years. The blue-chip index tanked more than 17% in the past week and registered its worst weekly performance since the 2008 financial crisis. What’s more, the index is down 35.1% from its recent peak.
In the past week, the broader S&P 500 dropped 15%. In fact, it is down 31.9% from its Feb 19 record high. Meanwhile, the markets have been very choppy. The S&P 500 witnessed seven successive trading days in which the index moved up and down 4%, the longest ever. Notably, the Cboe Volatility Index that measures expected instability over the next 30 days had hit an all-time high last week as investors across the globe liquidated almost all kinds of assets amid coronavirus scare.
And yet the stock market hasn’t bottomed out yet! For that to happen, the number of coronavirus cases need to peak. However, with all hands on deck in an effort to curb the virus, it seems highly unlikely.
Moreover, the Fed’s massive stimulus measures
to help the economy deal with the crisis has certain loopholes. The Fed cut rates in a bid to protect the economy from the coronavirus threat. But Fed’s rate cut did little to improve sentiments! This is because a rate cut lowers borrowing costs. In fact, in case of the coronavirus outbreak, the bigger problem lies with demand contraction due to travel restrictions and supply disruptions. Now, such issues can’t be tackled by only rate cuts.
U.S. Treasury Secretary Steven Mnuchin, in the meantime, said that the Trump administration is working on a huge relief plan
that will directly benefit American consumers, especially small business houses. However, the Senate vote failed to garner the necessary number as the Democrats voted against the coronavirus rescue package. The argument being the move will primarily benefit Wall Street and not Main Street. Senator Chuck Schumer, a New York Democrat added that the so-called coronavirus bill is a “corporate bailout” and it doesn’t protect everyday workers.
It’s worth pointing out that the failure of the bill does indicate the lack of consensus among the Democrats and Republicans to zero down to a package that is vital for the economy. Further, Federal Reserve Bank of St. Louis’ president James Bullard predicted U.S. unemployment rate to hit 30% due to the partial shutdown of the U.S. economy amid coronavirus pandemic.
Which Stocks Have Outperformed During Brutal Market Declines?
The current situation certainly looks grim. And when stocks go from hitting all-time highs to a drop of more than 20% in just about three weeks, there isn’t much left for equity investors. Nevertheless, low-volatility stocks do appear a good bet at the moment. After all, these stocks tend to hold up better in tough times. Perhaps more surprisingly, these stocks have done better over longer periods of time, even before the coronavirus-induced market crash.
The Invesco S&P 500 Low Volatility ETF (SPLV), obviously, declined less compared to the broader S&P 500 in the past one-month period. But interestingly if you go back to May 5, 2011, when the SPLV was established, it has given a return of 208.5% through the record high Feb 19, 2020, while the S&P 500 gained 202.1% during the same period. For the past three years, SPLV has gained 53.1% outperforming the S&P 500’s growth of 52.4%. And for the past five years, SPLV has rallied 79.7% compared with the S&P 500’s return of 77.9%.
5 Solid Choices
In order to screen for low-volatility stocks or which are inherently less volatile than the markets they trade in, low-beta needs to be considered. In this case, a low beta ranges from 0 to 1. By the way, a beta is a measure of volatility that shows how closely a stock’s price movement correlates with a benchmark.
(CALX - Free Report
) provides cloud and software platforms. The company has a beta of 0.67. The Zacks Consensus Estimate for its current-year earnings improved 5% over the past 60 days. The company’s expected earnings growth rate for the current quarter and year is 37.5% and 250%, respectively.
(CBZ - Free Report
) provides financial, insurance, and advisory services. The company has a beta of 0.31. The Zacks Consensus Estimate for its current-year earnings increased 6.1% over the past 60 days. The company’s expected earnings growth rate for the current quarter and year is 9% and 10.2%, respectively.
The Ensign Group, Inc.
(ENSG - Free Report
) provides health care services. The company has a beta of 0.81. The Zacks Consensus Estimate for its current-year earnings improved 12.3% over the past 60 days. The company’s expected earnings growth rate for the current quarter and year is 9.1% and 13.8%, respectively.
Regeneron Pharmaceuticals, Inc
. (REGN - Free Report
) discovers, invents, develops, manufactures, and commercializes medicines. The company has a beta of 0.77. The Zacks Consensus Estimate for its current-year earnings increased 8.3% over the past 60 days. The company’s expected earnings growth rate for the current quarter and year is 41.4% and 18.4%, respectively.
Turning Point Brands, Inc
. (TPB - Free Report
) provides tobacco products. The company has a beta of 0.47. The Zacks Consensus Estimate for its current-year earnings increased 5.1% over the past 60 days. The company’s expected earnings growth rate for the current quarter and year is 9.3% and 10.2%, respectively.
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