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Survival of the Fittest: How Markets Responded to the COVID-19 Economy
- How financial markets have reacted in the face of yet another crisis
- What to expect in a post-COVID-19 world
- Why trading with OspreyFx is the right move
Hemmed in by the strict ‘stay-at-home’ rules, the past 100+ days have given a growing contingent of individuals around the globe the desire to get their feet wet in the trading ocean. What unfolded in the third week of March can only be described as short of apocalyptic. Many of us were focused on the eye of the storm and the surging death rates. Meanwhile, the global markets were collapsing before our very eyes with fears that history would repeat itself, and 2008 would materialize once again.
2020 has seen everything from the tumbling shares of the world’s biggest organizations, to the value of the dollar surge against other majors. Trillion-dollar markets – the bedrock of our financial system, swung higher and lower in panic-stricken cycles. In a bid to boost economies or, at the very least, reduce damage to the bare minimum, these months have almost become the “era of stimulus packages”.
Despite rising volumes and the perfect love story that unfolded between trading and lockdown, markets have been pulverized by COVID-19. Here we bring you a breakdown of how the different markets reacted during the ‘great lockdown’, and what traders can expect post-pandemic. Let’s get started.
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Can the Global Stock Market Survive Yet Another Crisis?
The stock market has had traders glued to their seats. From March lows to new highs in June, we have certainly seen an Oscar-winning performance. Nevertheless, the first quarter of the year was a terrible one for stocks globally. While European stocks recorded the worst quarter since 2002, other equities such as The Dow Jones Industrial Average and S&P 500 were down approximately 20%. However, since the lows in mid-late March equities have recovered and rallied smartly. This is a result of governments cutting interest rates and offering stimulus packages coupled with a revival by some central banks, namely the European Central Bank, Bank of England, and the US Federal Reserve.
Stocks came back strong, with DAX (Germany) up 47%, the CAC-40 (France) up 43%, and in the UK the FTSE-100 rose by 33%. The Nikkei 225 rallied by 37% while in Hong Kong the Hang Seng surged by 20%.
The US equities were the most triumphant. Nasdaq reached new highs in June, up 50%, 10% ahead for the year. Elsewhere, S&P 500 has seen gains as high as 48% and the Dow 51%, but the pair remain down for the year to date – S&P 500 down 5.5% and the Dow 10.3%.
As expected, the whirlwind of losses and gains has generated some speculation, leading financial analysts and investment professionals to worry that the markets were becoming detached from reality.
Should Traders be Bearish or Bullish on the Stock Market?
Although stocks have essentially recovered from the pandemic sell-off since March lows, analysts believe that people are overly optimistic about a “sharp recovery”. Looking at the bigger picture, millions of people globally lost their jobs. Some companies openly stating that a percentage of the workforce won’t return to employment. Interest rates remain at close to zero until at least 2022. Despite decreases in mortality rates and easing of global restrictions, COVID-19 is still raging. Lockdown, albeit partial, is going to be the norm until at the very least a vaccine has been found.
Although the stock market is known for moving ahead of the real economy, the risk is not in moving equities. Indeed, the risk is that Wall Street has priced in all of 2021 and we are only halfway through 2020. Additionally, according to TS Lombard’s Director & Chief Economist “Once the initial stock market recovery matures, it is always down to earnings to validate the bull market.” Thus, investors could see a repeat of the heroic comeback staged by S&P 500 in 2001-02 amid the post-September 11 crash. However, the bounce-back was short-lived. The rally fizzled out in 2002, with a renewed bear market appearing on the collapse of the dot-com bubble.
A Realistic Viewpoint
In brief, it’s hard to predict what will happen in the stock market, but volatility is here to stay, and market recovery will not happen overnight. With some analysts stating that 2019 economic activity levels may not return until at least 2022 in some countries.
What Stocks Prevailed?
Despite the stock market’s wild swings, there are a lot of “essential” and non-essential companies that can thrive during this pandemic. According to analysts here is a list of investment opportunities for traders during these unprecedented times.
Gilead Sciences is a leader in the fight against COVID-19. Despite the widespread losses circulating the market, the healthcare giant’s share price is up 3% since May and is now worth $70 per share.
Stay at Home Economy
As we settled into a new norm of “staying in” our lives had to adjust to working, socializing, and relaxing all within the comfort of our own home. To that end, it’s no shock that the following stocks would make the list.
Netflix is the clear winner of the lockdown with a whopping jump of 15.8 million subscriptions back in March. The introduction of the Netflix party allowed the streaming giant to offer innovative entertainment options while still allowing users to maintain that connection with the real world. If 10 years ago you placed a bet on Netflix, you would be doing a song and dance right about now. Nevertheless, it’s still a safe bet today, despite easing of restrictions and reopenings, shares have still held up.
Some companies have witnessed an increase in online revenue as high as 400% as more consumers make the shift to online ordering. So, it’s only fair that Amazon, one of the world’s online retail majors makes the cut. The company is going from strength to strength. Not only did it double its share price between 2017 and 2018 but more recently the company also hit the $1 trillion valuation mark while stocks hit a record high.
Zoom has played a major part in people’s lives in recent months, from family quiz night to business conference calls or college lectures. The tech giant is a smart buy for several reasons:
1. It’s profitable, unlike many tech prodigies. In 2019, it turned over a net income of $25.3 million. Furthermore, as it stood in January, Zoom had no long-term debt and $855 million in cash and marketable securities.
2. Economies of scale: Daily usage surged from 10 million in December to 200 million in March. What’s more, it could meet the surge in demand, thanks to its tens of thousands of additional servers that were readily available for deployment across 17 data centers around the globe.
Proctor & Gamble
Proctor & Gamble is a consumer goods corporation that became a front liner, as people scrambled to buy household goods around the world. P&G has recently revamped its product offering resulting in a 12-month return of 2.6% and a robust sales growth is expected for Quarter 2 2020. Furthermore, the corporation’s dividend has increased by 6%, as it marks the 64th consecutive time that the company has increased its yield.
Crypto vs COVID-19
COVID-19 has changed the world around us, and cryptocurrency is no exception. Bitcoin has been a focal point of many online conversations throughout the pandemic. The crypto giant has been heavily correlated with the traditional markets. Particularly before the halving and some points afterward, its “safe-haven” status remained to be seen. From March lows with price drops as high as 40% and post-halving rallies, to the current situation were the crypto continuously flirts with the $10k level. Indeed, the crypto is up approximately 24% for the year. To get a better understanding of Bitcoin prices, you can read our blog ‘Bitcoin and Crises: A Walk Through Past Bubbles’
Elsewhere in the crypto space, digital assets such as Ripple (XRP) and Ethereum (ETH) have also seen their fair share of volatility. However, in June Ethereum logged its busiest week on record with transactions reaching a new high surpassing that from September last year. The queen of the crypto pack has also been partial to a little flirting. At its highs, ETH shielded the support above $240 and conquered the resistance at $245. With ETH 2.0 scheduled for July, the next phase paves the path for a promising future.
At the time of writing, the market capitalization for the entire cryptocurrency market stood at $267 billion. With BTC, ETH & XRP topping the charts. We believe that the 3 giants are among the best coins to trade. Read ‘Expert Views: Top Tips from Crypto’s Elite‘ to see why.
Crypto in a Post-COVID-19 World
Before the current pandemic, cryptocurrencies’ reaction in a crash scenario was unclear. Now, we know that the popular assets are not completely bulletproof and BTC’s “safe-haven” status remains unattained. Nevertheless, crypto has proven its worth in the 10 years since its inception. For the full benefits don’t miss ‘Blockchain Disruption: The Impact Across the Financial Sector’
In the wake of the COVID-19 pandemic, financial markets all over the world are experiencing economic difficulties. Weakening currencies along with possible inflation may set the scene for faster adoption of cryptocurrencies. These economic effects have sent investors in search of assets that can offer shelter during a storm. Against a backdrop of shrinking GDP, economic slowdown, government bailouts, and fiscal stimuli, Bitcoin and cryptocurrencies have been touted as an inflation-resistant hedge.
Renowned investor Paul Tudor Jones who currently has 2% of his wealth in BTC has referred to the crypto as ‘a great speculation’, further stating that it reminds him of gold in the 1970s. Jones believes that for every day that goes by that Bitcoin survives, the trust will increase.
Despite the easing of COVID-19, a second wave is no longer a distant theory. Particularly with the U.S States showing an alarming increase in the number of cases, and some European countries following suit.
It is a well-known fact that the markets will need time to recover. Nevertheless, ‘Trading can Still be Profitable in a Downturn’. We have also answered all your ‘Trading FAQs’ in a two-part series, to help you navigate your way through any crisis.
If you’re interested in joining the millions around the globe who are after a piece of the trading pie, you’ll need to do your research before taking a bite. Staying up to date on market events is important but also understanding how such events affect your assets is equally as vital. This might seem nerdy or to some overwhelming, but it will make the difference between a good decision and one you may regret.
OspreyFX prides itself on providing traders with updated news and information. Moreover, we offer traders a broad range of investment choices so that they can diversify their portfolio. Better yet, we offer up to 1:500 leverage and are a true ECN broker. What are you waiting for? Start your trading journey today.