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3 Factors Preventing the Market’s Return to a Pre-Coronavirus Normal

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About one-third of the global population is on lockdown because of the novel coronavirus outbreak. Various forms of lockdown are in effect, but no country can claim a 100% flattening of the curve. COVID-19 continues to spread with new cases being reported daily.

Since the official declaration of the pandemic by the World Health Organization (WHO) on March 11, 2020, global stock markets have gone wild. The Toronto Stock Exchange (TSX) fell to 12,508.50 the following day, which is a 30.3% drop from a high of 17.944.10 19 days previously.

A fiscal stimulus package is in place to prop up the market. The support is “mildly” successful, as the TSX has climbed 14.8% to 14,359.50 since then. But the situation remains fluid. Three factors are standing in the way and preventing the market from returning to a pre-coronavirus normal.

No vaccine to end the pandemic

Health officials, particularly infectious disease experts, believe the development of a vaccine is critical to ending the pandemic. However, the general population will have to wait for 12 to 18 months before a vaccine becomes available.

During the waiting period, COVID-19 will continue to bring social and economic damage. The impact could be lasting if the lockdowns persist for months. Fast tracking the process or producing a vaccine earlier than in normal circumstances hasn’t been done before.

Lack of potency in oil production cuts

The oil price war added to the market volatility. Saudi Arabia-led OPEC and Russia agreed to end the stalemate and slash production output to lift the market from the virus-plagued collapse.

While reducing the global supply by nearly 10% is good, it’s but a fraction of the demand loss. The deal requires contribution from G-20 countries to add potency to revive oil prices.

Meanwhile, the energy sector was ravaged by the coronavirus and the oil price war. TC Energy (TSX:TRP)(NYSE:TRP), however, was not severely beaten. This energy stock has only a 7.2% loss to show year to date.

Fitch Ratings, one of the Big Three credit rating agencies, has affirmed its A-minus rating of TC Energy. The agency’s high rating reflects the large scale and cash flow predictability of the Calgary-based energy infrastructure company.

Based on Fitch’s evaluation, TC Energy’s cash flow has predictable quality. The strong portfolio of assets generates nearly 95% of the cash flows that come from long-term contracts and regulatory rate orders.

Thus, both the contract and regulatory-based cash flows enable the company to eliminate customer-demand variability from earnings. A plus factor is the decision of TC Energy to proceed with the construction of the Keystone XL Pipeline project.

Once service commences by 2023, Keystone can deliver a crude oil volume of 830,000 barrels per day. The construction will be undertaken with guidance from all levels of government and health authorities.

Collapsed investor confidence

The most important element for the market to regain vitality is to bring back investor confidence. COVID-19 is the biggest headwind of all. Losses in this market crash can be anywhere from 15% to 50%, depending on the quality of investments.

Overcoming the first and second factors are the prerequisites. Investors need to see the return of stability. Otherwise, there’s no incentive to invest.

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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Christopher Liew has no position in any of the stocks mentioned.

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