A new wave of coronavirus cases in the United States and China following a rushed ‘unlocking’ has once again put the market into the bear territory. Markets witnessed a spike initially in June with the benchmark indices hitting new highs on declining unemployment rates.
However, this did not last long with the second wave of cases denting the optimism surrounding a swift economic recovery. Also, two sections of market watchers’ contrasting predictions are making matters worse.
‘V’, ‘U’ or ‘L’ Shaped Recovery in the Cards?
Though a fast ‘V’ shaped recovery was strongly expected in the month of May on job market recovery, now many project a ‘U’ shaped recovery or even a ‘saucer shaped’ curve.
Going a step ahead, economist Nouriel Roubini has warned about an ‘L’ shaped recovery, leading to 10 years of depression and debt. This clearly indicates tough times for the investment world. Going by a BBC news report, he noted that, “Even if the global economy recovers this year from the impact of the coronavirus, it will be anaemic [anemic].” There will be some jobs, which will not come back after the pandemic.
On the other hand, Morgan Stanley is still convinced that the coronavirus recession will have "sharp but short" blight on the global economy. Going by a Business Insider report, the bank said that, “The global economy will roar back to pre-pandemic levels by the fourth quarter and fuel a strong stock-market bounce into 2021.”
Meanwhile, Fed’s launch of Main Street lending programs (to support small and medium firms), as well as its Jun 15 announcement to buy a broad and diversified portfolio of corporate bonds (to support market liquidity and the availability of credit for large employers) are getting mixed reactions from investors. On the one hand, these monetary aids are considered to be an impetus to revive the economy. On the other hand, a number of economists believe these packages to be a clear sign of little chances of natural economic rebound anytime soon.
Be what it may, amid such hullabaloo, it’s imperative to note that sectors such as energy, consumer discretionary, auto, aviation, travel and tourism and restaurant industries have been bearing the brunt of the pandemic and are likely to continue witnessing the same going ahead. In this regard, we note that, according to the 2018 report of the World Travel & Tourism Council (WTTC), this sector accounted for 10.4% of global GDP, 319 million jobs and 10% of total employment. Undoubtedly, the current situation of no international travel has hit economic growth substantially.
Sectors Showing Resilience
While growth has taken a backseat for most sectors, COVID-19 has, however, opened up enormous growth prospects for a few. Here we discuss four such sectors.
Consumer Staples stocks are in focus in the current scenario. With home isolation still in place, panic buying has increased. Consumers are hoarding toilet papers, sanitizers, face masks, other personal hygiene products and basic packaged food and beverages even in times of financial trouble. Further, delivery disruption at online retailers is compelling customers to go for stockpiling. Going by an Investopedia report, “As retailers scramble to restock their supplies, traders may find buying opportunities in companies that manufacture and/or sell these in-demand staple products.” Two consumer staples stocks that investors may consider buying now are Reckitt Benckiser Group PLC (RBGLY - Free Report) and Henkel AG & Co. (HENKY - Free Report) , both with a Zacks Rank #2 (Buy).
Diabetes Management sector continues to flourish on account of several positive developments. This can be primarily attributed to rapid shift of consumer interests toward the adoption of telehealth and remote monitoring tools amid the pandemic-induced lockdown. Moreover, the insurance industry has started paying its customers to use non-traditional digital health services while they’re sheltered in their homes. Also, diabetes patients are highly susceptible to contracting the coronavirus. Hence, digital diabetes treatment options have been witnessing a surge in demand in this time of economic crisis. Investors currently may pick stocks like DexCom (DXCM - Free Report) , which currently carries a Zacks Rank #2.In April, the FDA enabled the use of DexCom CGM in the hospital setting and other healthcare facilities to lend support to COVID-19 healthcare related efforts, thereby further boosting demand for the product.
Homebody Economy stocks have gained significant momentum over the past three-four months as more and more people remain confined to their homes. With people limiting their outdoor activities as much as they can, online gaming company, Tencent Holdings (TCEHY - Free Report) with a Zacks Rank #1 (Strong Buy), subscription streaming entertainment channel Netflix, Inc. (NFLX - Free Report) and interactive fitness products provider Peloton Interactive (PTON - Free Report) , both with a Zacks Rank #2, have witnessed an increased in subscriptions. You can see the complete list of today’s Zacks #1 Rank stocks here.
At present, a number of Biomedical companies and drug makers are competing to find a treatment option against COVID-19. Novavax has started the phase 1 clinical trial of the coronavirus vaccine candidate NVX-CoV2373 and has enrolled the trial’s first participants. Preliminary results are expected in July. Moderna (MRNA - Free Report) however seems to be leading this race and is scheduled to initiate the final-stage clinical trial by July. Both the stocks carry a Zacks Rank #3 (Hold).
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