By Adam Connolly
2020 has been a rollercoaster of a year and the stock market has followed suit. With the Dow Jones Industrial Average hitting an all-time high of 29,551.42 in February 2020, it looked as though the market would continue to rise on what seemed like an endless bull run. For those who are unfamiliar with the Dow Jones Industrial Average, it is simply a market index that measures the performance of 30 blue chip (well-established) companies. This article will illustrate the effect COVID-19 has had on the stock market and highlight the companies who have struggled most and those who have performed well in the midst of a global crisis.
The 9th of March was reminiscent of ‘Black Monday’ (1987) with the Dow Jones Industrial Average dropping over 2,000 points (Williams, 2020). The announcement of a $1,200 government stimulus check (money given to American citizens to compensate for income lost as a result of coronavirus) triggered a rise the following day, however, stocks later fell marking the end of an eleven-year bull run (Langley et al., 2020). The market continued to drop as President Trump announced a travel ban against the Schengen area, which is comprised of 26 European Countries (Specia, 2020). In addition to stocks crashing, bitcoin saw its price drop from $10,000 to $4,000 (Rooney, 2020).
The coronavirus outbreak led to the near decimation of certain industries such as airlines and cruise lines. Royal Caribbean Cruises (RCL) had been trading at over $130 per share but fell to $24.03, its lowest price since 2011. Carnival Cruise Line (CCL) also took a substantial dip. Equally unstable was the airline industry with some of the big players such as Delta Airlines (DAL) falling from over $60 a share to under $22. CEO of Berkshire Hathaway, Warren Buffett believes the virus has changed the airline industry in a big way and felt that selling all of Berkshire’s airline stock was the best option (Franck et al., 2020).
The future of the cruise line industry is uncertain and the question as to when they will be able to set sail again remains thought provoking. Data analysts predict that Royal Caribbean will survive the crash despite having a monthly cash burn of $200 - $275 million (Hochberg, 2020). Ryanair represents just one of the many airlines who have taken a hit during the pandemic. Having made a net profit of €1bn last year, the low-cost airline was going from strength to strength. CEO Michael O’Leary has joined other airlines such as easyJet by threatening to take legal action against the UK’s 14-day quarantine measures for inbound passengers (McNutt, 2020). Ryanair’s share price has performed well over the last few weeks, perhaps linked to the reopening of many tourist destinations such as Spain and Greece. With that being said, O’Leary admitted that bookings will only be operating at part capacity due to fears amongst people that travelling abroad could spark a second wave of COVID-19 cases.
Hertz Car Rental has made headlines in recent times due to the company filing for Chapter 11 bankruptcy. This form of bankruptcy allows the company to reorganize their debts and their assets in an attempt to stay afloat. The 102-year-old company employed over 38,000 staff and sits atop the list of large firms who have struggled during the pandemic. Billionaire investor Carl Icahn sold all of his Hertz stock at an average price of 72 cents a share for a loss of nearly $2 billion (Lin, 2020). Despite the bad news, Hertz stock has soared in the last week indicating a possible restructuring of the company or perhaps a classic case of ‘pump and dump’.
Despite many companies struggling throughout the pandemic, some have performed well. Apple (AAPL) and Amazon (AMZN) have performed particularly well, with both of them reaching all time highs. For Q1, Amazon did over $75bn in sales, an increase of 26% on Q1 last year (Earley, 2020). In order to meet consumer demand, the company created over 175,000 new jobs in March and April (Palmer, 2020). Like Amazon, the popular e-commerce platform ‘Shopify’ has skyrocketed over the last few weeks with its share price passing $800 at one point. Shopify is now the most valuable public company from Canada (Earley, 2020). With social distancing being mandatory in most areas of work, Zoom Communications (ZM) have burst through the scene with their share price growing over 100% this year. The app has played a vital role in allowing schools and colleges to adapt their learning experience to an online format. Whilst their share price may well be overvalued at the moment, there is no doubt that there is huge potential in communications technology.
The last two weeks have seen the stock market make a remarkable recovery having been shattered weeks previously. Why has it recovered so quickly? No doubt, the reopening of many countries has triggered the recent rise. Whilst we are on the road to recovery, there are many obstacles that have yet to be overcome. I believe that the amazing rally the market has had in recent times only goes to reinforce the famous saying that ‘the market will stay irrational longer than you can stay solvent’.
References/Further Reading
Earley, K., 2020. Amazon Could Wipe Out Next Quarter’s Profit With $4Bn Covid-19 Expenses. [online] Silicon Republic. Available at: https://www.siliconrepublic.com/companies/amazon-coronavirus-response-covid-19-earnings-report-2020 [Accessed 14 June 2020].
Earley, K., 2020. Shopify’s Business Thrives As Retailers Move Online. [online] Silicon Republic. Available at: https://www.siliconrepublic.com/companies/shopify-earnings-coronavirus-q1-2020 [Accessed 14 June 2020].
Hochberg, M., 2020. Wall Street: How Long Royal Caribbean Can Go Without Cruises?. [online] Royal Caribbean Blog. Available at: https://www.royalcaribbeanblog.com/2020/05/15/wall-street-how-long-royal-caribbean-can-go-without-cruises [Accessed 14 June 2020].
Josephs, L. and Franck, T., 2020. Warren Buffett Says Berkshire Sold All Its Airline Stocks Because Of The Coronavirus. [online] CNBC. Available at: https://www.cnbc.com/2020/05/02/warren-buffett-says-berkshire-sold-its-entire-position-in-airlines-because-of-the-coronavirus.html [Accessed 12 June 2020].
Langley, K. and Otani, A., 2020. Dow Jones Industrial Average’s 11-Year Bull Run Ends. [online] WSJ. Available at: https://www.wsj.com/articles/global-markets-calmer-after-two-hectic-days-11583899913 [Accessed 12 June 2020].
Lin, E., 2020. Carl Icahn Logs Nearly $2 Billion Loss As He Sells All Hertz Stock. [online] Barrons.com. Available at: https://www.barrons.com/articles/carl-icahn-logs-nearly-2-billion-loss-as-he-sells-all-hertz-stock-51590617530 [Accessed 14 June 2020].
McNutt, E., 2020. Airlines Threaten Legal Action As UK Launches Mandatory 14-Day Quarantine On Arrival. [online] The Points Guy UK. Available at: https://thepointsguy.co.uk/news/uk-launches-14-day-quarantine/ [Accessed 14 June 2020].
Palmer, A., 2020. Amazon To Hire 75,000 More Workers As Demand Rises Due To Coronavirus. [online] CNBC. Available at: https://www.cnbc.com/2020/04/13/amazon-hiring-75000-more-workers-as-demand-rises-due-to-coronavirus.html[Accessed 12 June 2020].
Rooney, K., 2020. Bitcoin Loses Half Of Its Value In Two-Day Plunge. [online] CNBC. Available at: https://www.cnbc.com/2020/03/13/bitcoin-loses-half-of-its-value-in-two-day-plunge.html [Accessed 16 June 2020].
Specia, M., 2020. What You Need To Know About Trump’s European Travel Ban. [online] Nytimes.com. Available at: https://www.nytimes.com/2020/03/12/world/europe/trump-travel-ban-coronavirus.html [Accessed 15 June 2020].
Williams, S., 2020. Stock Market Crash 2020: Everything You Need To Know | The Motley Fool. [online] The Motley Fool. Available at: https://www.fool.com/investing/2020/03/10/stock-market-crash-2020-everything-you-need-to-kno.aspx [Accessed 12 June 2020].
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