Why investors should look to the 'new normal'

We are entering the fourth stage of the COVID-19 crisis:

1. Stage one - lasted from the moment the virus was confirmed in China, until the moment world markets reacted after seeing the global spread.
2. Stage two - the almost vertical drop in markets that lasted over a month.
3. Stage three - the recent, equally sharp recovery - mostly driven by the massive monetary and fiscal relief from central banks and governments.
4. Stage four - likely to be the potential lifting of lockdowns and the economic and healthcare impact of these moves.

Has anything changed as we enter stage four?

It’s no secret that most western countries are still woefully lacking in virus testing kits and facilities, personal protective equipment (PPE), intensive care units, ventilators, and so on. While we are also testing possible therapies for the virus, we are still at the beginning; despite non-stop talk of a vaccine, we are nowhere near getting one in the quantities required for the overall population.

Every week that passes brings some updates to the virus infection numbers and to these potential solutions. In general, the news is getting better on that score. What still worries many in the markets, however, is that the economic impact is still unclear - not just in terms of depth, but mostly of length. The other issue is what the world will look like on the other side - the ‘new normal’.

What does the ‘new normal’ look like and how could this affect investments?

Some things may have changed forever. Our brush with work from home and intensive online shopping may become addictive. Conversely, we may spend less on autos, holidays and children’s parties. Our love affair with restaurants may be a fond memory. Our travel patterns are also bound to be less frequent, whether for business or pleasure. We may instinctively avoid crowds, take our temperature regularly and bow or exchange elbow bumps instead of shaking hands or kissing. Wearing facemasks will be for the many, rather than the few.

How will that affect the economy? Clearly, our spending could be more limited in travel, leisure, hospitality and live entertainment, whereas we could spend more on healthcare, delivery services, online entertainment and education. In addition, we may become less tolerant of pollution after seeing clean Mediterranean-looking skies in our northern climes. We will also be more understanding of those who do the hard work in our societies, many of whom have been laid off or furloughed during this period. We may even continue our weekly clap for key workers.

The investment conclusions you can derive are quite interesting. After lockdown, we will keep being dependent on information technology and healthcare (sectors that have benefited from the crisis and will likely continue to do so). But other areas will benefit from our newfound social attitudes too. Taking more care of the environment and certain social groups will naturally guide us towards ESG (environmental, social and governance) investments. We now know how vulnerable our species and our planet can be, and we will want to do anything we can to protect both, putting our money where our mouth is.

At the same time, frivolous spending may well be shunned and some discretionary spending may be curtailed for good. Grooming, however, is likely to return as we all go back to our ‘new normal’ work and social lives, so the cosmetics and luxury business could experience a revival.

In general, the areas of real secular – or consistent – growth could be aligned with our change in attitudes and become the strongest sectors of the market. Our needs may have changed but long-term growth will most likely still exist, and will be eagerly sought after by investors.

We are looking for opportunities on behalf of our discretionary and advisory clients and the right timing to invest in the areas that we are more positive on. We are concerned, however, that some sectors have risen very sharply over the last month and may require more careful timing. In our last communication, we asked if markets were right to keep going up and our misgivings remain. Rest assured though, we are staying focused on a potential durable rebound and remain poised to seize these opportunities.

COVID-19 updates

For further updates on markets during this time, please visit our coronavirus hub here.

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Investment involves risk. The value of investments and the income from them can go down as well as up and you may not get back the amount originally invested. Past performance is not a reliable indicator of future performance.

The information provided is not to be treated as specific advice. It has no regard for the specific investment objectives, financial situation or needs of any specific person or entity.

The information contained herein is based on materials and sources that we believe to be reliable, however, Canaccord Genuity Wealth Management makes no representation or warranty, either expressed or implied, in relation to the accuracy, completeness or reliability of the information contained herein. All opinions and estimates included in this document are subject to change without notice and Canaccord Genuity Wealth Management is under no obligation to update the information contained herein.