2020 Returns by Sector — Can They Give Us Possible Insights into Future Consumer Behavior?
Introduction
COVID-19 has created clear winners and losers in 2020. Some sectors have plummeted, while others are outperforming the market. By analyzing returns by sector, we can see possible trends going forward.
Personally, I believe that the coronavirus will significantly alter human habits for the foreseeable future. Think about it. Even when the coronavirus pandemic passes, won’t people still harbor fear in the back of their minds about going on an airplane, eating out at a restaurant, and working in close quarters? Even if there isn’t another pandemic in the next century, won’t people pay more attention to the possible spread of disease? I’m not saying that everyone will change their habits because of COVID-19. However, I am saying that enough people will do so to significantly affect sector performances.
Let’s see and examine three of the world’s major industries.
*NOTE: I realize that almost all the sectors of the economy have rebounded in the last 2–3 months due to panic over the coronavirus subsiding. Different timelines will naturally paint different pictures. However, since I’m trying to discern how consumer habits will change in the future, I believe using YTD performance will paint the most accurate picture of COVID-19’s impact.
Information Technology
It shouldn’t come as a surprise that technology has had the highest YTD performance. According to Fidelity Investments, information technology has gone up 14.91% YTD. Take one look at your parents hopping on a Zoom call, your sibling binging a Netflix series, and your grandparents using Amazon, and you’ll see why technology has outperformed the market.
The question is whether this trend will likely continue. I believe the answer to that question is a firm yes. Companies will continue to use Zoom, Google Meet, and other platforms when coronavirus subsides. Additionally, many relatives have gained a newfound appreciation for the power of a platform such as Zoom, and they will continue to use Zoom and other communication apps to connect with family members who are far away.
Advancing technology will continue to connect this world in ways never seen before, all the while making investors in communications technology happier.
Companies such as Netflix and Amazon have outperformed the market because people have largely continued to use them throughout the pandemic. The same thing applies to other companies such as Apple, Microsoft, and Facebook, who will continue to see growth in the future with or without coronavirus.
Energy
What I am saying is that COVID-19 has greatly increased people’s interest in alternate forms of energy, including electric cars and other green technologies. This trend will likely spell growth for Tesla and other so-called “green” companies in the future.
The energy sector has performed miserably this year. Its overall YTD performance is -37.90% according to Fidelity Investments. This shouldn’t come as a surprise either, as the halt in travel has decreased demand for oil, gasoline, and other types of energy.
I don’t believe COVID-19 will significantly impact the energy sector in the future, at least not in a direct way. Once the world resumes normality, demand for energy will rise and companies such as Exxon Mobil will recover. However, coronavirus will impact traditional forms of energy through an indirect medium: green technologies.
I think it’s very telling that Tesla has achieved a nearly 180% YTD return, whereas Exxon Mobil has declined significantly. Though this is a simple comparison between two companies, I believe it signals a wider appreciation for green technologies. In no way am I saying that the use of oil, gasoline, and traditional forms of energy will decline in the future. Developing nations and emerging markets will continue to rely on traditional energy sources to grow their markets. What I am saying is that COVID-19 has greatly increased people’s interest in alternative forms of energy, including electric cars and other green technologies. This trend will likely spell growth for Tesla and other so-called “green” companies in the future.
Travel
The travel industry has also underperformed the market in 2020. Prominent companies such as Disney (-25%) and American Airlines(-57%) have disappointed their investors, to say the least. This has largely been due to the widespread shutdowns COVID-19 has caused.
By now, it’s obvious that the quarantine and CDC guidelines have caused many people to shy away from traveling in 2020. It’s only natural that this would hurt the travel industry’s YTD market performance. The question is whether the trend to avoid travel will continue in the future. I believe the answer to this question is different depending on the context. For instance, airplanes will likely see a return to normalcy in the near future, as flying is a necessity for many people. However, for resorts, cruises, and other forms of travel where consumer spending is discretionary, performance will likely see a permanent dip unless companies in these areas re-brand themselves. Like I hinted above, many consumers will likely continue to harbor a distrust of discretionary travel, even if the distrust is unconscious.
Conclusion
Market share and trust will also play integral parts in determining which companies COVID-19 will impact the most and least. Companies with the most market share will have an easier time rebounding than companies that don’t have commanding positions and resources to overcome the pandemic’s far-reaching effects. Companies that can brand themselves as being the most trustworthy will also attract more customers in the future.
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