April 22, 2020 – As published in Forbes
By Kenneth Rapoza
This coronavirus is a buy.
A large majority of investors surveyed bythink the pandemic is opportunity knocking. That might explain why the market is still rising in the middle of the worst public health crisis since the Spanish Flu of 1918.
When asked if the coronavirus pandemic represented a good time to invest, 77% of survey respondents said yes. A similar number said that the ramifications of the pandemic will be greater than that of the Great Financial Crisis of 2008-09, but 60% also believe there will be more opportunities to make money.
“Investors should be prepared to take advantage of the opportunities presented by volatile trading conditions. Like the old adage says, panic when everyone is greedy, but be greedy when everyone panics,” says Jesse Cohen, senior markets analyst at.
The sectors no one wants to buy include airlines and travel (86%); retail (60.6%); oil and gas (45.9%) and — somewhat surprising given low interest rates — real estate (41.8%).
“I’m optimistic about the (Trump) Administration working with state and local leaders, and with industry leaders to get the best input on how to re-open the economy. So we moved into companies like Dollar General DG and Walmart WMT and software company Autodesk ADSK. Companies with strong balance sheets will weather this,” says Elizabeth Evans, managing partner of Evans May Wealth, a financial advisory.
Goldman Sachs recently cut its U.S. economic forecast to deep negative for the year, and is now expecting gross domestic product to decline by 24% in the second quarter of 2020 due to government quarantine measures.
“The idea that the economy is going to recover in a V-shape, I think most people have set that aside,” says Jeanette Garretty, chief economist at Robertson Stephens Wealth Management. “There are going to be winners and losers, but it is not clear to me what they will be, so this is tricky as an advisor. Everyone loves to buy on the dips. But that only makes sense if you understand the fundamentals and have some clarity on earnings and I don’t think we have that right now.”
Of the 47 U.S. companies that have reported earnings so far, earnings fell by 32% year-on-year. With the exception of financials, where bad loan provisions were higher than analysts expected, results in all sectors beat expectations by 8.2%. Sales growth was also better than forecast.
“Results for this and the next several quarters are inevitably going to show negative growth rates, but the more negative they are now, the better the comparable figures will be in the subsequent quarters,” thinks Daniel Morris, senior investment strategist at BNP Paribas Asset Management. “If earnings per share falls by just 13% this year and is followed by 22% growth in 2021, the rebound we have seen in the market over the last several weeks is not so odd.”
And so for that reason, investors are still in the game.
According to a blind survey by Blind, which maintains a list of tech industry staffers that they poll on various issues of the day, 26.6% of respondents are increasing their investments in their retirement funds. Only 11% reduced their monthly contribution plan to their 401(k).
Some 23.3% said they would take on more risk, beating the 18% that said they would reduce risk.
When the pandemic is finally over, 29.7% of respondents said they will reconsider their 401(k) asset allocation plan and move more heavily into stocks. Only 9.4% said they will reduce risk.
These are all tech employees, so their incomes tend to be six figures. Most of them can work from home and did not lose their jobs.
The U.S. has shed over 22 million jobs in the past four weeks due to the pandemic. In addition, some 43% say someone in their household has taken a pay cut.
The public’s assessments of the U.S. economy has deteriorated with extraordinary speed and severity. Just 23% of Americans now rate economic conditions in the country as excellent or good, down sharply from 57% at the start of the year, according to Pew Research Center. Most respondents told Pew that the economy is in either only fair (38%) or poor (38%) shape. In January, just 9% of Americans said economic conditions were poor.
“I think we’ve gone too far too fast,” says Julia Carlson, founder and CEO at Financial Freedom Wealth Management Group. “It was an incredible run from the end of March to the end of last week, but we think there will be a better entry point coming to add risk. We don’t think there is enough certainty around the situation to say ‘let’s ad risk here’,” she says.
Over 55% of investors believe the economy will fully recover a year from now, with 32% believing it will do so before the end of 2020, based onfindings. Only 4% of investors believe the economy will never fully recover, which is good news even for non-investors.
“To find the winners and losers in this market post-pandemic, you are going to need a good old fashioned kick the tires approach,” says Garretty, a plug to active investment management. “That requires lots of brain cells working hard to find those companies.”