he market cares less about COVID-19 than you think. The recent volatility in global financial markets may seem like the latest pandemic-induced shocks, but there are signs that investors are growing accustomed to the idea that some form of the virus is part of our new norm.
In other words, following the pandemonium COVID-19 triggered when it first swept the nation almost two years ago, the VIX has telegraphed signs that the market is gradually becoming less reactive and more rational – moving from a fixation on short-term pandemic beneficiaries and setbacks to acceptance that the virus has become a more manageable phenomenon.
A long upward climb that left stocks overvalued. Remember the old adage that trees cannot grow through the stratosphere? Well, stocks have sidestepped a bear market – a 20% or greater drop – since 2008. Sectors that did notably well during the three combined COVID-19 surges in 2020-2021 were the Information Technology, Materials, and Consumer Discretionary groups. “These sectors have benefitted from structural growth trends that have accelerated due to the pandemic such as digitization and technology, or else had increases in demand due to consumer behavior and lower input prices,” says Nuveen’s Malik.
Stocks of companies in the Energy group, such as ExxonMobil, Chevron and ConocoPhillips, rebounded as global demand recovered after initial lockdowns early during the pandemic and inventory overstock was worked off. Financial stocks got a boost as massive stimulus injections stemmed an economic downturn and loan write-offs, and reserves came down. Examples include JP Morgan Chase, Band of America and Wells Fargo.
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