Investors have had a rollercoaster ride this year and there won’t be a single person reading this who doesn’t know the reason why! Stocks plummeted over 30% in March but have since rallied and have been steadily climbing since, with many bumps along the way of course. From a low of 2,237.40 in March, the S&P 500 finished up at 3,100,29 as Q2 drew to a close and has continued on an upward trajectory in July. I think many investors were expecting a lot worse!
However, within the overall figures there are sectors that have weathered the storm well while others have taken a significant battering. Let’s take a look at the winners and losers of 2020 to date.
The financial winners of 2020 to date
It’s no surprise that while entire nations were locked down at home with few distractions people turned to tech to communicate, work from home and entertain themselves causing an unprecedented surge in demand for online services. As a result technology companies proved to be the most resistant to Covid’s chaos. Indeed, digital transformation was accelerated considerably according to Microsoft’s CEO, Satya Nadella, who has said ‘We’ve seen two years’ worth of digital transformation in two months.’ To give an example, shares in Zoom, the teleconferencing platform, have more than trebled since the start of the year.
Shopping has been another popular distraction for populations stuck at home. While the outlook is gloomy for brick and mortar retail, e-commerce is thriving and softening the blow of the overall retail decline. An eMarketer study has predicted that ecommerce sales in the US will increase by 18% in 2020 particularly in the food and beverage, and health, personal care and beauty sectors. Walmart, for example, ‘is expected to grow ecommerce sales more than 35% in 2020.’
With outdoor sports out of bounds game-players have gone inside giving a boost to the gaming industry. Research by Newzoo suggests that the global video game market is expected to reach $159.3billion this year, in part due to lockdown-induced user numbers soaring to record levels.
The financial losers of 2020 to date
The energy sector was the worst-hit during the Covid-19 lockdown. Static populations caused a seismic drop in global energy demand and the oil price war between Russia and Saudi Arabia exacerbated the sector’s woes resulting in negative returns of almost 30% for the industry. The energy sector has rallied in July as lockdown eases in many countries.
At peak pandemic consumers reined in spending and borrowed less while unemployment rose causing a surge in the number of borrowers defaulting on loan repayments. These two factors have caused banking stocks to tank. The Wall Street Journal reported this week that J.P. Morgan, Citigroup and Wells Fargo all took a hammering in quarter two of 2020 and are collectively stockpiling a rainy day fund of $28billion to weather the coronavirus storm, predicting that the worst is yet to come.
Industrial returns suffered during lockdown as a result of disruptions to the supply chain, factory shutdowns and the challenges faced by the transport industry. According to a PWC study ‘Uncertainty surrounding the duration (or even a deepening) of these conditions clouds any insights into how a recovery could unfold for the industry. …there is a real possibility that the crisis will result in bankruptcy for some manufacturers, as declining demand, production and revenues, along with debt obligations, take their cumulative toll’.
Barely breaking even: the healthcare sector
The big biotech firms are furiously chasing the holy grail of a Covid-19 vaccine and the big bucks it will bring. Investors are piling in for a piece of the action with the combined market caps of the eight firms developing a vaccine soaring 450%. But these gains are tempered by heavy losses in the dental, surgery and product manufacturing subsectors with fears that highly endebted firms in these areas pose a high risk in terms of debt default. Hence why this sector has proved less resilient than might be expected.
Are we on the road to recovery or is the sense of renewed optimism as economies kick back into gear misguided? It’s very difficult to tell but one thing we do know for sure: there is still a long way to go.
What does this mean for your portfolio? As ever, we recommend keeping calm and carrying on! If you already have a diversified and balanced portfolio your best strategy is probably to sit tight and tough out the storm although some rebalancing may be necessary. If you have any concerns at all, speak to an Infinity adviser who can assess your investments in relation to your risk profile and investment horizon and help you get your finances into the best shape possible in this tricky economic landscape.
I can honestly say that my main driving force at Infinity is a fundamental belief that good financial planning makes people’s lives better. People working abroad really do have an enviable opportunity to make a huge success of their lives, and making good financial decisions is essential…as well as working damn hard!