The Dow Jones Industrial Average plunged on Monday after US Senate negotiations on a bailout package initially failed. Photo: Angela Weiss / AFP

The global economy is divided into three different sectors: primary, manufacturing, and service. Those are composed of the energy, basic materials, industrials, consumer cyclical, consumer non-cyclical, financial, health-care, technology, telecommunication services, and utility industries.

Before investing in any company, it is of vital importance to analyze each industry’s performance in different economic cycles. During a recession, for example, consumer staples normally preserve a steady demand, as well as discount retailers such as Walmart, alcoholic-beverage companies such as Anheuser Busch InBev SA, and even companies in the consumer discretionary industry such as Kao Corp or Ulta Beauty Inc.

Unfortunately, when panic comes everything falls, including so-called defensive sectors (consumer defensive, health care, and utilities). Since the beginning of the year, every industry has fallen by between 22% and 53%. The best performance was by global technology with a 22.51% decrease, followed by global telecommunication services with a 22.90% drop. The worst performance was registered by the global energy sector, losing around 53%, and global financials, down by 39.62%.

In this context, the natural question emerges, which of them will be able to recover faster?

Nobody knows what the stock markets will do. We can look at long-term historical performance and try to compare it with the current situation. Exactly for that reason, many analysts have said that Covid-19 would have a similar market reaction as SARS (severe acute respiratory syndrome). Unfortunately, every pandemic or crisis is unique as well as the environment in which they arise.

The current coronavirus epidemic began with disruptions to supply chains and restrictions on travel and has resulted in the imposition of “social distancing” measures such as closing schools and confining regional populations to their homes. As a result, entire industries have shut down, and for some of them it will take years to recover.

For example, the energy sector suffers the most from the coronavirus fears, as its stocks are closely tied to crude-oil prices, and the epidemic has caused oil demand to plummet. To be more precise, energy stocks in the S&P 500 have decreased to their lowest levels in 15 years. However, this can be also attributed to a “fight” between oil giants Saudi Arabia and Russia that threatens to flood the market with crude oil. 

Theoretically, low oil prices should have cut airlines’ costs, thus helping to improve their balance sheets and making their stocks more attractive. In reality, this has been discounted by a drastic fall in air-passenger traffic, due to travel restrictions. If the situation continues for more than three months, it could dry up airlines’ revenue sources. The International Air Transport Association (IATA), in its latest estimates, projects that the global air transport industry could lose up to US$252 billion in revenues this year, or 44% below 2019’s figure, because of the ongoing spread of Covid-19.

Year to date, Boeing stocks have fallen 63%, Delta Airlines 54%, Lufthansa 39%, and the Russian airline Aeroflot by 34%.

However, there have also been some companies able to benefit from the pandemic. Domino’s Pizza, for example, has increased by almost 17% year to date, Amazon grew by a modest 0.75%, streaming service Netflix improved 9%, and meal-kit company Blue Apron surged 62.11%.

Finally, in 2019, retail e-commerce sales worldwide amounted to $3.53 trillion and e-retail revenues are projected by Statista to grow to $6.54 trillion in 2022. To date, online shopping is one of the most popular online activities worldwide. In this context, it might be interesting to take a look at digital companies.

Igor Kuchma

Igor Kuchma is a financial adviser who is passionate about economy and the capital markets in general. He has experience working with Russian, Spanish and American financial institutions. He helped to compile a course for the Series 7 exam, while some companies he has prepared investment portfolios and macro and microeconomic models in Excel, and has studied trends and historical data.