I’m really relieved to see the first signs of the slowing of the coronavirus in Europe. And in the U.S., confirmed cases and deaths from the virus are growing more slowly. Many science and medical experts say that the social distancing measures are starting to work.
And that brings us to today’s Reality Gap. Big Media hails the slowing growth as a reason the market has been up the last two days – and that seems to be quite true. But the reality is that slowing growth doesn’t mean a return to business as normal anytime soon.
If you’re serious about thriving in these markets, you’re invited to join the Crisis Trader Update.
And while we prepare to put together our post-crisis Trade of the Decade portfolio, we need to keep in mind that even when the economy starts to recover, it’s going to happen in a step-wise fashion. Here’s what you can invest in now, and what you should wait on…
As parts of the U.S. are entering the peak of the coronavirus pandemic, some countries are starting to come out the other side.
In Europe, countries like Austria, Denmark, and hard-hit Italy have begun considering gradually reopening schools, businesses, and travel.
Meanwhile in China, the source of the outbreak and also the first country to at least officially get it under control, has reopened its factories and its citizens are returning to work.
This will be a slow process, but it’s starting now overseas. And before long, we will start loosening restrictions here in America, too.
So it’s time to start putting together your post-COVID investment plan.
But temper your expectations. This pandemic, and the “pause” we put the economy on, will leave its marks. It will be a different world we re-enter. Some of what we took for granted about business, the economy, and human behavior will no longer apply.
Here’s how to make sure your post-COVID investment plan fits our new reality…
China Shows There’s No Quick Return to Business as Usual
Once we pass the peak of the COVID pandemic, people will not go back to their old habits immediately.
For weeks we’ve all been cooped up in our homes, told not to go outside, and to stay 6 feet or more away from other people.
These messages, and the underlying fear of a second wave of coronavirus infections, will change our behavior for the long haul.
And I’m not just talking about the fact that more of us will be wearing face masks.
Take China, for example. It’s clear that China has not been forthright on its count of infections and deaths during this pandemic. The Chinese government admitted as much when it recently stated that people who had tested positive for the coronavirus but did not show symptoms had not been counted in official numbers.
But it’s equally clear that China has managed to get its outbreak under control. The loosening restrictions, closures of field hospitals, and lower amount of cases even from unofficial sources show that the outbreak is fading.
And yet the behavior of Chinese citizens is nowhere near close to normal.
Take a look at this chart from GPS provider TomTom showing traffic congestion in Beijing:
The red lines show how congested the streets of Beijing were this past 7 days. The dotted blue lines show the same data from a year ago.
As you can see, morning rush hour is more or less back at 2019 levels. But there is no congestion at all during the day, especially at noon. This shows that folks are not going out to run errands or drive to get lunch like they used to. And the evening rush hour is much lower – again, fewer errands and no stopping for an after-work drink with friends.
Moreover, there is barely any traffic over the weekend or during weekday evenings.
It’s clear that people in Beijing have returned to their work commutes. But it seems no one is driving anywhere for lunch during the day, or to see a movie, go to a restaurant, or to any other entertainment venue during the evening.
In other words, life has not returned to normal.
We’ll be seeing similar effects in Europe and the U.S. once our lockdowns begin to lift.
Here’s how you should prepare…
It Will Take Time for People to Be Comfortable in Groups Again
After weeks cooped up in our homes and relying on the Internet for entertainment and to spend time (virtually) with friends and family, live and in-person entertainment options will have a lot of convincing to do.
Movie theaters will be among the hardest hit. We’ve now had weeks to get used to streaming more video online than ever before, at a much lower cost than even a single movie ticket. Several apps also allow us to stream movies simultaneously with our friends and be able to chat about them in real time, without being hushed by the rest of the movie theater.
Even worse for the movie chains, on March 16, Universal Studios decided to break with the 90-day exclusivity given to movie theatres for new releases. Instead, Universal released three movies directly to streaming services. Disney took a similar step by releasing Frozen II on its Disney+ streaming service three months ahead of time.
With streaming services now getting new releases faster, new apps making streaming from home more social than even going to the movies, and lingering fears of sitting in a movie theater with strangers, expect theater chains like AMC or Cinemark to recover slowly.
Casinos will face similar struggles, compounded by people’s reluctance to travel long distances. Airlines already have a reputation for being an uncomfortable and cramped way to get around. With social distancing fresh in everyone’s minds, expect air travel to stay low for a while.
That will also affect the hospitality sector, and perhaps most of all, cruise lines. After all, many of the most high-profile outbreaks of this pandemic have happened on cruise ships, showcasing just how isolating and dangerous they can be if something goes wrong.
Expect even restaurants to struggle with attracting customers back, as people have become more used to delivery services or simply cooking in.
In short, it will take time for people to get comfortable doing things again. And that’s not even mentioning the lower spending power of the millions suddenly losing their jobs.
Restaurants, airlines, cruise ships, movie theatres and other forms of entertainment that are expensive and require close contact with strangers will all suffer.
As for the winners in the post-COVID recovery, it’s going to be the companies that are already adapted for this new, virtual world.
The Big Tech companies like Apple Inc. (AAPL) and Microsoft Corp. (MSFT) came into this crisis with huge war chests of cash. Not only does this means they had the reserves to weather the storm, but they are already taking the opportunity to buy smaller companies that are now trading for less.
Apple, for example, just acquired an AI startup called Voysis to improve Siri, Apple’s digital assistant. Expect more acquisitions like this as we go forward.
Of course, companies like Microsoft, Amazon.com Inc. (AMZN), and Citrix Systems (CTXS) are also seeing a boom in the use of their cloud services and videoconferencing platforms, as office workers across America have shifted to working from home.
And of course Disney+, Netflix Inc. (NFLX), and other home entertainment options are more popular than ever, a habit that is likely to stick even when other, less convenient options reopen. NFLX is the best pureplay for streaming right now.
I don’t believe we’ve seen the worst of the stock market decline yet. But anyone with a fear of missing out (FOMO) on the next market leg up can add these stocks above to their portfolio. They’ll all be winners on the other side of the crisis, so stick with those names for now.
I believe restaurants, airlines, casinos, and cruise ship companies will have a longer recovery time and should be added to your portfolio later in the recovery.
Great trading and God bless you,