Can A Second Wave of COVID-19 Be Debilitating to the Stock Market?

Health experts expect a second wave of Covid-19 during the late fall. So, what do investors think about the recovering economic situation?    

Will a second wave of Covid-19 strike the planet? Experts think so. While you could be worried about your health, investors would be concerned about the stocks they’ve invested in and the general economic environment. Which stocks can weather the second storm?

 The Threat Posed by a Second Wave

 A poll reported by Financial News shows that some of the greatest investors in the world are fearful about the potential of a second coronavirus wave hampering the delicate recovery of the stock market and putting market rallies out of track. The potential lockdown that could be imposed as a result of the second wave is the primary cause of concern.

 The survey, which was conducted by Procensus, noted that 70% of “long-only investors” and hedge funds were concerned or very concerned about Covid-19 resurfacing. All respondents felt there was a probability of 34% of their respective regions entering total lockdown. 34% of the respondents were also not hopeful of a vaccine getting developed in time before the second wave strikes. Since Procensus’s last poll, investor expectations have crumbled expecting a cumulative fall in nominal GDP of 10.1% vis a vis 9.6% on 26 March. Only 60% of investors said they are “very bearish” or “somewhat bearish” on global equity markets over the next 3 months.

 Things Needn’t Be as Bad as They Seem

But not all strategists are gloomy in their perspective. SEI Investments chief market strategist James Solloway, says stocks that have been hit hard by the pandemic will rebound eventually, despite the possibility of a second wave. The pandemic has widened the gap between growth stocks and value stocks. But Solloway believes that could change soon.

Solloway reckons that stock leadership can change dramatically in certain periods. These periods normally “correspond with the bottoms” of a recession after those asset classes experience progressive deterioration. He believes this trend has been observed in small caps and value stocks this year, as well as in emerging markets. The shift would happen when traders begin to get indications of the economy reopening. They also need to be confident that any second wave won’t be as severe as the first. Solloway is among those who are confident.  

 Countries Are More Prepared to Deal with the Pandemic

For one, Solloway believes that countries are more prepared than before to deal with the pandemic with more testing equipment available. Because of this, any surprises can be dealt with quickly. In any case, he reckons a second wave wouldn’t be as severe. In that case, investors need to find out the most weakened stock market sectors, as they typically do.

 Meanwhile, President Trump has announced that the United States would not be shut down even if a second wave of the pandemic strikes in the months to come. According to health officials, a second coronavirus pandemic is likely with the usual flu season that begins in late fall. Trump, however, was confident that any outbreak will be put out but the economy won’t be closed.

 Preparing for the Worst

Fresh cases of coronavirus are still being reported in the United States and in many parts of the world. But the brunt of the pandemic, that has already claimed more than 320,000 lives globally, seems to have passed. But investors would need to carefully watch the unfolding pandemic situation and be prepared for any potential second outbreak.  

 Despite the potential second wave, those who want to get started in stock trading will find that the direct access trading platforms from innovative online broker-dealers are very useful.