The new normal - how is the coronavirus affecting the stock market?
The coronavirus stock market impact of 2020 is likely to go down in the history books for a variety of reasons. Not only did Covid-19 wreak havoc in financial markets all around the world it significantly changed the way people think and behave. These consumer changes, along with businesses trying to adapt to lockdown restrictions, social distancing and less mobility are predicted to stay for quite some time. Learning how to invest in this 'new normal' is now more important than ever.
In this article, you will learn:
- What the new normal is and its impact on investing strategies
- How the coronavirus is affecting stocks and the ways in which you can capitalise
- Why sector investing is important in navigating the stock market and coronavirus
- How the new normal has created new categories of stocks and shares you need to know about! This includes:
- How Admiral Markets UK Ltd can help you trade and invest in the new normal and how to get started right away!
What is the new normal?
Originally, the term 'new normal' referred to the new business and economic conditions after the 2008 financial crisis. Economists believed that businesses would have to change their behaviour to regain trust from consumers after loose lending practices led to a housing bubble in the United States, triggering a financial recession.
In 2020, the impact of the coronavirus forced a huge change on businesses and consumers. These changes have also been referred to as the new normal which many believe will last for a long time. This includes social distancing and working remotely which are new business and economic conditions that companies will have to adapt to.
Interestingly, the change in consumer and business behaviour has left some very interesting patterns in the financial markets with surging and crashing stock prices in certain industries and sectors. This combination has led to some very interesting trading and investing opportunities for many investors, as you will find out further down this article.
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Coronavirus stock market impact in the new normal
Since the first outbreak of the coronavirus in China, the disease has infected people in more than 180 countries. The economic impact has been vast all across the world. Global stock markets sank with some indices recording their biggest ever quarterly drops since 1987. Traders and investors ran for the exits on the fear of the virus spreading, hurting company profits and decimating economic growth, as shown in the weekly price chart of the S&P 500 stock market index (SP500) below:
Source: Admirals MetaTrader 5, SP500, Weekly - Data range: from 30 June 2013 to 23 June 2020, accessed on 23 June 2020 at 12:18 pm GMT. - Please note: Past performance is not a reliable indicator of future results.
To combat the virus, central banks all around the world slashed interest rates and restarted quantitative easing programmes as they did in the 2008 financial recession. To support workers and businesses, the United States Senate approved a $2 trillion coronavirus stimulus package. Other central banks also took huge action, such as the Bank of Japan which approved a 110 trillion Yen coronavirus stimulus package.
As central banks like the Federal Reserve and European Central Bank promised to do 'whatever it takes' to support the economy, investors piled back into global stock markets in late March. Many stock indices have seen a hugely impressive recovery. However, the gains have been fragmented across different stock market sectors.
While there are many different answers to the question: how is the coronavirus affecting the stock market? there has been one major impact. Investors have become much more selective in their investing approach choosing to focus on industries and sectors that could benefit from the new normal while shunning the rest. This type of sector investing can be broken down into the following three main categories:
- Stay at home stocks
- Work from home stocks
- Coronavirus vaccine stocks
Let's look at each of these sector categories individually and the best-loved investor stocks in each of them. At this stage, it might be useful to download your FREE MetaTrader 5 trading platform provided by Admiral Markets. This will enable you to follow through the examples and stock charts discussed in the rest of the article.
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Stay at home stocks in the new normal
During the coronavirus governments all around the world imposed lockdown restrictions to stop people from spreading the virus. Some individuals were also forced out of work and told to stay at home, while many others began working from home. This 'stay at home' mentality led to a basket of specific stocks becoming very attractive to investors.
#1 Netflix Inc (#NFLX)
Netflix received 16 million new subscribers during the lockdown as individuals turned to online streaming of TV shows and movies to fill the time. The number of new subscribers was almost double the user growth it saw in the last quarter of 2019. While lockdown restrictions shut down production of filming, the company's share price surged higher as investors forecast more and more people will be staying or working from home.
Source: Admirals MetaTrader 5, #NFLX, Weekly - Data range: from 2 June 2013 to 23 June 2020, accessed on 23 June 2020 at 1:18 pm GMT. - Please note: Past performance is not a reliable indicator of future results.
In the long-term weekly chart of Netflix's share price above, it's clear to see the recent rise higher. In fact, the company's share price was steadily rising from the middle of 2019. While Netflix is now facing more competition from Disney and Apple's streaming services, investors believe the company is well-positioned to weather the impact of the coronavirus - hence the rising stock price.
#2 GrubHub Inc (#GRUB)
GrubHub provides delivery services to more than 350,000 restaurants in the United States. This includes major chains such as Subway, McDonald's and Wendy's, as well as smaller, locally-owned restaurants which actually make up for more than 80% of its business. Investors started to position themselves early on in the company banking on the fact people will be ordering a lot more takeaways from their favourite chains during the lockdown.
Source: Admirals MetaTrader 5, #GRUB, Weekly - Data range: from 30 March 2014 to 23 June 2020, accessed on 23 June 2020 at 2:18 pm GMT. - Please note: Past performance is not a reliable indicator of future results.
As early as February 2020, Uber put in play a motion to acquire its US rival. While they lost the race over regulatory concerns, Just Eat Takeaway, a European food delivery app, reached a deal to buy the Chicago-based GrubHub for $7.3 billion that is set to create a world leader in online food delivery.
In the long-term weekly chart above of GrubHub's share price, it's clear to see the recent surge higher in 2020. Before this, the share price was in a clear downtrend. The coronavirus stock market impact has led to investors, once again, liking shares of GrubHub which could be a reversal of fortune for the company.
Other notable mentions in the stay at home sector include:
- Facebook (#FB) whose active user count is now more than 2.6 billion people beating markets expectations of more than 10% the same time one year ago.
- Amazon (#AMZN) has a range of different services well suited for those staying at home. This not only includes online deliveries in food and household essentials but also online streaming service Amazon Prime and its Audible and Kindle services.
- Activision Blizzard (#ATVI) has also benefited from people staying at home as more people turn to video games which are now being played at record levels. The company not only beat earnings expectations in May 2020, but all of its employees have also been working from home, which leads us on to the next category.
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Work from home stocks in the new normal
Remote working has surged higher during the coronavirus as companies have been eager to get back to business. Many companies have now found ways to completely move to remote working employees in the new normal. While the most obvious companies like Zoom have been widely discussed in financial media there are others that have performed even better. Let's take a look.
#1 Microsoft Corp (#MSFT)
Microsoft has been a pioneer in providing IT and software solutions to global companies. However, in the past ten years, the company has undergone a radical transformation in its product line. The transition from Office products to its cloud offering under Office 365 has helped, as well as the introduction of the Microsoft Teams product. It's a company that is established and likely to do well regardless of the economic situation.
Source: Admirals MetaTrader 5, #MSFT, Weekly - Data range: from 23 January 2013 to 23 June 2020, accessed on 23 June 2020 at 4:18 pm GMT. - Please note: Past performance is not a reliable indicator of future results.
In the long-term, weekly price chart of Microsoft's share price above it's clear to see the uptrend. While there have been a few minor dips the staying power of the company is particularly strong with most companies and home users familiar with Microsoft's products. Now that users can access the company's products on the cloud, it has also gained a good position in remote working solutions.
#2 DocuSign Inc (#DOCU)
DocuSign is a leader in electronic signature technology and allows companies to prepare and execute agreements and contracts. The solutions provided by the company are all cloud-based which makes it ideal for those working from home. The company's IPO was only in 2018. Since then, its stock price has surged higher, as shown in the chart below:
Source: Admirals MetaTrader 5, #DOCU, Weekly - Data range: from 22 April 2018 to 23 June 2020, accessed on 23 June 2020 at 3:18 pm GMT. - Please note: Past performance is not a reliable indicator of future results.
In the long-term, weekly price chart of DocuSign's share price above it's clear to see the company was performing well even before the impact of Covid-19. However, since the coronavirus, the company's share price has surged higher and is trading at new all-time highs.
Other notable mentions in the work from home sector include:
- Dropbox (#DBX) was one of the original companies offering cloud storage and file-sharing services. While competition from Microsoft, Google and Amazon has eroded its market share, the company still has more than 600 million users, although with a struggling share price.
- Atlassian (#TEAM) is based in Australia and offers project and productivity tracking tools used by many different companies. The company is well-known for its Trello and JIRA platform. With an annual earnings growth of approximately 38% over the past five years, it is a well-positioned stock for remote working.
- Citrix Systems (#CTXS) provides software which allows workers to access company systems remotely. These products include virtual private servers, file sharing and storage solutions. The company's share price was already performing well before the coronavirus. However, events have solidified their position as a market leader in remote working.
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Coronavirus vaccine stocks
While the new normal has forced people to stay at home and work from home, there are those whose new normal is to find a coronavirus vaccine. At the time of writing, there are more than 50 coronavirus vaccine potentials which are at different stages of testing.
Pharmaceutical companies and biotech companies have been in hot demand from investors due to the race to find a coronavirus vaccine. However, it is worthwhile noting that this sector can be very volatile. In fact, some companies such as Inovio Pharmaceuticals started the year as a mere penny stock before doubling in value in 2020 alone. Risk management is going to be essential when trading such high volatile stocks. Let's take a look at a few.
#1 Inovio Pharmaceuticals (#INO)
Inovio Pharmaceuticals' share price started the year trading around the $3 per share mark. It's been a rollercoaster ride for investors as the company announced its big ambition of delivering one million does of a vaccine by the end of the year. The shares jumped even further on 23 June to nearly $18, after the company announced $71 million in funding from the Department of Defense to produce a handheld device to administer the company's experimental Covid-19 vaccine, which is currently in phase one clinical trials.
Source: Admirals MetaTrader 5, #INO, Monthly - Data range: from 1 February 2002 to 23 June 2020, accessed on 23 June 2020 at 4:18 pm GMT. - Please note: Past performance is not a reliable indicator of future results.
Other notable mentions in the coronavirus vaccine stocks sector include:
- Regeneron Pharmaceuticals (#REGN) in early February announced its development of a new vaccine and treatment candidate. The company started a collaboration with Sanofi and have since launched phase two and three trials in Germany, Spain, Canada and Russia, among others.
- Moderna Inc (#MRNA) was very quick to find a potential vaccine candidate after producing it within two days of the Covid-19 genetic sequencing being released. While the company started phase one trials in the US as early as February 2020, trials will take at least a year.
How to trade the new normal
By now you may have downloaded your FREE MetaTrader 5 trading platform provided by Admiral Markets. If you haven't yet done, start your free download by clicking here. Once you have done this, trading in the new normal only requires a few steps, as outlined below:
- Open your MetaTrader 5 trading platform provided for free by Admiral Markets.
- Open the Market Watch window by selecting View from the top menu of the platform. Alternatively, press Ctrl+M on your keyboard. This will then open up a list of symbols you can potentially trade on.
- To find the symbol, or market, you wish to trade on simply right-click in the Market Watch window and select Symbols. The Symbols window will then open.
- You can either search for the market you wish to trade in the search box or select from the categories on the left, as shown below. Once you have selected the symbol you wish to trade on, click OK.
A screenshot of the MetaTrader 5 trading platform provided by Admirals showing the symbols window.
To place a trade on this market, follow these steps:
- Drag the symbol from the Market Watch window onto the chart.
- Right-click on the chart and select Trading, New Order.
- A trading ticket will open for you to set your own parameters such as direction (buy or sell), market execution, volume and others.
A screenshot of the MetaTrader 5 trading platform provided by Admirals showing a trading ticket.
Why trade with Admirals in the new normal?
- Trade in confidence with a well-established company authorised and regulated by the Financial Conduct Authority (FCA).
- Benefit from a negative balance protection policy, which can protect you from adverse movements in the market.
- Trade from the popular online trading platform MetaTrader for PC, Mac, Web, Android and iOS operating systems.
- Open an Invest.MT5 investing account to buy the best shares, stocks and ETFs from 15 of the largest stock exchanges in the world.
- Open an Admiral.Markets or Trade.MT5 trading account to trade via CFDs, allowing you to go long and short a market and potentially profit from rising and falling markets.
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Why not test your ideas and theories today? Click on the banner below to get started!
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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or recommendation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.
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