Global markets have been on a roller-coaster ride the past week. The coronavirus epidemic is spreading rapidly, and analysts say there is no telling how big of a hit the economy will take as a result.
Investors quickly singled out stocks that could lose big if the virus proves especially disruptive, but many also tried to spot winning bets—stocks that might actually benefit from consumers pulling back on their regular activities.
While the S&P 500 (.SPX) suffered its worst two-day stretch in more than four years to start the week, investors found havens in a peanut butter manufacturer, bleach producer and financial exchanges. They rebuffed going out: Restaurants took a hit, as did concert venues.
Here’s our look at what bets have worked this week—and what investors shied away from.
In times of market duress, investors often turn to shares of bland but essential businesses where households are unlikely to stop spending money. The past week has been no exception. Investors punished shares of peanut butter giant J.M. Smucker Co. much less than the market as a whole (down 1.3% since the S&P 500 peaked Feb. 19, versus a drop of 8% for the broad stock index) while boosting Clorox Co. (CLX) (up 1.9%). Viruses aren’t about to stop Americans from stocking up their pantries. And they might make disinfectant wipes more popular—especially if the coronavirus spreads further in the U.S.
Pharmaceutical companies have raced to develop treatments effective against Covid-19, the illness caused by the new coronavirus. Investors have placed their bets accordingly, wagering any company that wins approval to roll out a vaccine for the masses stands to profit handsomely. Regeneron Pharmaceuticals Inc. (REGN), which has partnered with the Department of Health and Human Services to develop antibody treatments, has risen 14% since Feb. 19. That makes it the best-performing stock in the S&P 500 over that time frame.
Exchanges and high-speed trading firms tend to make more money when markets are volatile. That means the market’s gyrations over the past couple of days have been a boon to companies like CME Group Inc. (CME) (up 6.1% over the past week), which experienced record volumes Tuesday as traders used its futures to place bets or hedge against market moves. Another beneficiary: rival exchange operator Cboe Global Markets Inc. (CBOE) (up 2.8%), which makes much of its money from products tied to its Cboe Volatility Index (.VIX). Then there is electronic trading giant Virtu Financial Inc. (VIRT) (up 6.9%). Volatility tends to benefit speedy traders like Virtu by allowing them to make more money from dislocations in stock prices. CME, Cboe and Virtu “perversely benefit from the market woes,” Piper Sandler analysts said in a research note Wednesday.
Most restaurant stocks have fallen lately. Not Domino’s Pizza Inc. (DPZ). The pizza chain has soared 23%, with much of the gains coming after the company fended off competition from rivals like UberEats and DoorDash to post better-than-expected earnings and revenue on Feb. 20. Will the spread of the virus stop the rally? Executives aren’t concerned yet. “I don’t see this as a long-term impact on the business,” Richard Allison, chief executive of Domino’s, said on the company’s earnings call. In fact, food delivery services have become lifelines for millions of people quarantined in China. It is possible U.S. companies with dominant positions in the delivery business will benefit as well.
With the possibility that more people will be staying home, shares of companies that offer a fun time out have dropped more than the broader market. Among entertainment shares, Cinemark Holdings Inc. (CNK) has fallen 21%, Dave & Buster’s Entertainment Inc. (PLAY) has shed 19%, and Madison Square Garden Co. (MSG) has lost 12%. Restaurant shares have also declined: Shake Shack Inc. (SHAK) has dropped 17%, and BJ’s Restaurants Inc. (BJRI) has swooned 19%.
Canceled your travel plans lately? So have many others. Investors have used the disruption as an opportunity to bet against shares of airlines, cruise companies and resorts—all of which have lagged behind the broader market since reports of the epidemic first began surfacing. American Airlines Group Inc. (AAL) shares have sunk 21%, Royal Caribbean Cruises Ltd. (RCL) is down 26%, and MGM Resorts International (MGM) is down 17%.
If travel is restricted, there will be less demand for gasoline to drive cars and fuel to fly airplanes. Factories that are closed and offices that have sent their workers home also won’t be using as much energy as usual—meaning oil-fired power plants will be less busy. All of that bodes poorly for the energy sector. U.S. crude oil futures are down 8.6% in the past week. Shares of oil-field services companies Halliburton Co. (HAL) and Schlumberger Ltd. (SLB) have declined 17% over the same period.
Karen Langley, Alexander Osipovich and Sarah Toy contributed to this article
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