The stock market has gone through a lot of ups and downs as a result of Covid-19. But there still are many opportunities to invest out there.
The one word that would immediately come to mind when remembering the early months of 2020, is “pandemic”. People carrying out online stock trading have all had to deal with this unexpected catastrophe that spread from Wuhan, China - where Covid-19 coronavirus was originally detected by the end of 2019 - to Europe and eventually the United States. Travel, hospitality and the brick-and-mortar retail industry were directly hit, while other industries were also indirectly affected.
But despite the gloom, there have been flashes of great news. Technology and ecommerce stocks have actually benefited from this trend. And it also appears that a great rally could be on the way.
How Similar 2020 Is to 2009
The stock market run thus far in 2020 appears quite similar to the 2009 run, as per the observations of an analyst. If those observations are right, there could be a significant upside coming up for stocks, after a period of stagnation. This is the opinion of DataTrek Research co-founder Nicholas Colas who has followed this particular analogy since the confusion in March brought about by the sudden spread of Covid-19 across the United States. And during all that observation, 2020 seemed quite similar to 2009. Here’s why.
Striking Parallels
58 days from the March 23, 2020 low, the S&P 500 has soared 37.1%. Back in 2009, the low point for the S&P 500 was on March 9. The index then soared 39.4% after 58 days.
Stocks attempted breaking away to the upside twice thus far in 2020, though they failed on both the occasions. On April 14, the 2020 stock rally overtook the rally of 2009 by 11 points though all the gains were given up in the next 5 days, and on June 15, 2020 the index rallied 13 points ahead of the rally of 2009. But the gap was closed by various declines, particularly the 6% drop of Thursday.
What makes these parallels between 2009 and 2020 so striking is the fact that the stock market is quite different now from what it was in 2009. One example is valuations becoming higher, with the S&P 500 trading 19.6x peak earnings while in 2008 it only traded 10.4x peak earnings.
The reason could be the fact that technology currently constitutes a greater part of the index - 32%. Back in 2009, the S&P 500 only had 18.4% made up of tech. Back then, energy made up 12.4% of the market overall while in 2020 it just makes up 3%. The rally in 2009 was primarily made up of financials. The 2020 rebound has been much broader. These broader causes were also what brought the stock market down in March.
Tech Stocks Are Now the Focus
If anything, the Covid-19 situation infused fresh impetus into tech stocks, since the products developed by tech companies proved to be of massive help during the lockdown. But it also showed that these technologies can make businesses work better even after they reopen. The perks of a technology-reliant workforce could make companies work more on these investments heading to the future.
According to ARK Invest CEO and co-founder Cathie Wood, companies would take time to adopt these new technologies, somewhere from 3 to 5 years. While the advantages of going digital were clear to all companies, many did not have the right resources or environment to go totally digital. There were struggles reported.
So, all is not pale. If you look deeper there are great opportunities waiting for you. With expert analyst opinions, you can prepare for the long-term future.
