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Why Stock Market Volatility Is Raging
At this point, there’s no telling how severe the fallout from the COVID-19 pandemic will be. The consensus now is that the next couple of months could be rough, both from a public health perspective and from an economic and market standpoint.
With any luck, the direst predictions will not come true, and our lives can regain some sense of normalcy sooner rather than later. At present, however, many households are justifiably worried about their portfolios, fearful that this may be a repeat of the financial crisis.
Those fears, of course, have triggered panic, resulting in a wild ride for stocks. And while the landscape looks grim now, there is reason to believe equities could become more settled before the end of 2020.
For sure, the federal government pursued a series of aggressive steps to help cushion the blow. The Federal Reserve has taken unprecedented action to backstop banks and keep liquidity flowing, while Congress recently passed a $2 trillion fiscal stimulus package, providing much-needed relief to hard-hit businesses and families.
That’s on top of city- and statewide stay-at-home actions across the country in an effort to tamp down the infection rate. Hopefully, these collective measures will be effective, and in time we can regain some sense of normalcy.
Meantime, it’s worth thinking about what the world will look like when that happens. American life has been upended profoundly, with new habits taking hold in ways that would have been improbable only weeks ago.
Many of them – including hoarding hand sanitizer and cleaning wipes, eating greater amounts of processed and boxed foods, and steering clear of air travel – will eventually recede. Others, though, will likely remain part of daily routines, particularly the ones that, while they may have been slowly gaining traction in recent years, were held back by either consumer or market inertia.
Telecommuting, for instance, seems to fit that bill, with many businesses likely having come to appreciate the benefits associated with remote work. While it’s not possible for all industries, allowing employees to work from home has the potential to improve margins (less capital devoted to office space), save time (more time working, less time sitting in traffic) and boost productivity (an office is full of distractions).
This would bode well for one of the few companies that has stayed in the black throughout this crisis, Zoom Video Communications (ticker: ZM), which provides remote conference services. Granted, there have been growing pains associated with the influx of users on Zoom’s suddenly popular platform, but those issues should get ironed out.
Another equally well-positioned firm (if not more so) is Microsoft Corp. (MSFT), a longtime business services software leader, which can now leverage Skype like never before and will undoubtedly benefit from more tech-enabled communication within companies.
Online shopping is another behavior that is about to become further entrenched. Most Americans, of course, already spend thousands each year buying things on internet sites like Amazon.com (AMZN). But after shoppers have spent months not visiting a brick-and-mortar store, it’s reasonable to ask whether many will ever go back.
As these companies thrive, many others will feel enormous pain. For example, publicly traded real estate investment trusts focused on retail and office space could get crushed.
These funds are already headed for trouble, thanks to what will likely be countless business bankruptcies. Longer term, it’s possible for investments like this to get spurned even further if tenants choose not to renew their leases in favor of going to a telecommuting model.
Meanwhile, retail businesses may never be the same. Even firms that have spent heavily to build out their online capabilities to better compete with Amazon, such as Walmart (WMT) and Target Corp. (TGT), will struggle to cope fully from the fallout from the coronavirus.
The question on the minds of many is simple: Where’s the bottom? The truth is, this is uncharted territory, and no one knows for sure.
At the same time, the American economy has always overcome its steepest challenges, including, most recently, the dot-com bubble, Sept. 11 and the financial crisis. It will beat this challenge eventually, as well, and in the process many of the behaviors that have been forced upon us in recent weeks will take permanent hold.
That will benefit some industries. But it could lay ruin to others.
