- The bear market in stocks
- A fertile ground if the supply chain holds up for Amazon (NASDAQ:AMZN) and Alibaba (NYSE:BABA)
- Habits will change, the death of retail
Last week was downright scary in markets across all asset classes. What began as fear and uncertainty, reached a new high, and the news got worse throughout the week as the number of cases in the US rose, and the situation in Europe worsened.
The fear over money and savings has taken a backseat, way behind health concerns. Everyone on our planet is facing a common enemy in the form of a microscopic virus that emerged in China and spread across the earth with lightning speed. Markets tend to reflect the economic and political landscapes during typical times. These times are anything but ordinary as battling coronavirus crosses borders and anything that separates human beings.
The world’s future is now in the hands of scientists and health professionals when it comes to a vaccine and treatments. The current environment reminds us that without health, we have nothing. I am an optimist and believe that science will find answers sooner rather than later. However, behaviors will change, and the economic fallout will linger for years. The Spanish flu that infected the world from 1918-1920 claimed over 50 million lives. At that time, the global population stood at below 1.9 billion. Today, there are over 7.6 billion people on our planet. Technology makes the odds of survival a lot better than a century ago. People are staying at home, and many are ordering essentials over the internet. Amazon (AMZN) and Alibaba (BABA) are two companies on the cutting edge of e-commerce. The action in both stocks reflects the current environment in all markets.
The bear market in stocks
After the past weeks, it is hard to believe that the stock market rose to a record high just one month ago on February 20.
(Source: CQG)
The weekly chart of the E-Mini S&P 500 futures contract shows the decline from 3,397.50 to a low of 2,274.75 last week, a drop of 33%. The contract was trading at the 2,445 level on March 20, 28% below the record peak.
A fertile ground if the supply chain holds up for Amazon and Alibaba
Late last week, New York, California, and other states closed down to stop the spread of coronavirus except for essential services. People continue to require food and other essentials, and the only alternative for many these days is shopping online. Meanwhile, the fear of contracting the virus is keeping people all over the globe home.
The shares of Amazon (AMZN) and Alibaba (BABA) have moved lower with the stock market. Still, while other companies watch earnings evaporate, both are likely to profit from the current situation.
(Source: Barchart)
As the chart shows, Amazon (AMZN) shares reached a peak in February 2020 at $2,185.95 per share. After dropping 25.6% when it hit a low of $1,626.03 on March 16, the shares recovered to $1,846.09 at the end of last week, 15.5% below the high.
(Source: Yahoo (NASDAQ:AABA) Finance)
As the chart shows, Amazon (AMZN) blew away consensus estimates in Q1 EPS at $6.47 per share beat by $2.44. In Q1, while most companies will experience the worst period in history, AMAZ stands to do much better than the $6.42 EPS consensus forecast.
Alibaba is the e-commerce king in China.
(Source: Barchart)
Alibaba (BABA) hit its high in January as coronavirus began its deadly journey around the globe in China. After reaching a peak of $231.14 on January 13, the shares fell 26.5% to a low of $170. At $181. 30 last Friday, BABA shares closed at $181.30, 21.6% lower than the record high for the stock.
(Source: Yahoo Finance)
Alibaba (BABA) beat consensus estimates for Q1 2020 earnings when it reported EPA of $18.19, $2.45 per share above the forecast. Just like Amazon (AMZN), the company is likely to blow away Q2 estimates at $6.70 per share.
While shutdowns impact the global supply chain, demand for the services provided by Amazon and Alibaba are explosive. Both companies have outperformed the S&P 500 for a good reason.
Habits will change, the death of retail
Before a few weeks ago, most people never considered the idea of social distancing. The notion of a state-wide or a nation-wide lockdown was not even a consideration for most rational people. The world has changed dramatically, and like a science fiction novel, the fate of many people lies in the hands of scientists in laboratories and health care professionals scrambling to deal with the exponentially rising number of infections. At the same time, it depends on the cooperation of all people to limit the spread of the virus.
Science will find the answer, but the fallout will remain for years, and habits will change. Germaphobia will become the norm and not an obsessive-compulsive disorder. In the new post-coronavirus world, consumer behavior will change. Retail stores have been losing market share to e-commerce giants for years. The global pandemic will push retail off the edge of a cliff.
Many retail businesses are another victim of coronavirus, and companies like Amazon (AMZN) and Alibaba (BABA) will be the beneficiaries.