What A K-Shaped Recovery Means For Investors
The U.S. economic recovery has taken on a K-shaped recovery when examining it at the industry level. This K-shape is what TPA has been using to steer clients toward sectors with the highest probability of success.
Suzanne Clark, President of the U.S. Chamber of Commerce, said,
“Depending on where you sit in the COVID economy, your business could be booming or on the brink of bankruptcy. The Pandemic’s uneven economic impact on industries and workers has been stark. Enter the K-Shaped Recovery. Long gone is the notion that we’ll have a V-Shaped Recovery—a deep economic decline followed quickly by sharp rebound. Instead, what we’re looking at is a recovery that will be vigorous for some sectors while others remain in freefall.”
The chart of this K-shaped recovery is provided below.
The relative performance chart below shows how these areas have performed in the stocks market 2020 year to date. TECH, Software and Services, and Retailing are in green. Hotels, Airlines and Leisure are in red.
RELATIVE PERFORMANCE OF SECTORS 2020 YTD
On 5/11/20, TPA showed clients the possible shapes of recovery, as described by Experian economic analysts (charts provided below). These shapes did not capture the nuances of the Covid-19 recovery in which the difference between the winners and losers is stark. In the 5/11/20 report, however, TPA spelled out what sectors clients should focus on and which they should avoid. TPA wrote in the World Snapshot:
“TPA feels that the most important point from the report for investors is what sectors and subsectors to focus on as the economy continues to feel the effects of Covid-19 and the shutdown.
Experian looks at it in terms of net job losses, but this is also telling in terms of business impact.
Leisure and Hospitality will continue to feel the worst effects of the crisis. Healthcare services, Business services, Retail trade, and Construction will also be negatively affected. On the other end of the spectrum, Government, IT, and Utilities will either be less affected or positively affected.
The table may be a roadmap for investors during the Pandemic. Be positioned away from those stocks most negatively affected (Leisure and Hospitality, Healthcare services,
Business services, Retail trade, and Construction) and focus on those sectors and subsectors that are either better positioned to withstand the storm or may even benefit from it (IT and Utilities).”
TPA’s advice has remained the same throughout the past 3 months and will continue to be consistent until there is a true solution for the Pandemic. Stick with those stocks that are either insulated from the effects of Covid-19 or benefit from the Pandemic.
POSSIBLE SHAPES FOR THE ECONOMIC RECOVER – EXPERIAN MAY 2020
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Jeff Marcus founded Turning Point Analytics (TPA) in 2009 after 25 years on trading desks and 13 years as a head trader to provide strategic and technical research to institutional clients. Turning Point Analytics (TPA) provides a unique strategy that works as an overlay to clients’ good fundamental analysis. After 10 years of serving only large institutions, TPA now offers its research services to mid and small managers, RIA’s, and wealthy sophisticated individuals looking for a way to increase their returns and outperform their peers.