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

It would take a coronavirus vaccine, a rise in oil prices, and investment confidence for the market to return to normalcy. TC Energy stock, however, is looking at better prospects in the aftermath of this market crash.

| More on:
globe with a mask and text coronavirus

Image source: Getty Images

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.

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.

More on Energy Stocks

Arrowings ascending on a chalkboard
Energy Stocks

Beat the TSX With This Cash-Gushing Dividend Stock

Canadian Natural Resources stock is well set up to beat the TSX as it continues to generate strong cash flows…

Read more »

energy industry
Energy Stocks

2 TSX Energy Stocks to Buy Hand Over Fist Now

These two rallying TSX energy stocks can continue delivering robust returns to investors in the long term.

Read more »

green energy
Energy Stocks

1 Magnificent TSX Dividend Stock Down 37% to Buy and Hold Forever

This dividend stock has fallen significantly from poor results, but zoom in and there are some major improvements happening.

Read more »

oil tank at night
Energy Stocks

3 Energy Stocks Already Worth Your While

Here's why blue-chip TSX energy stocks such as Enbridge should be part of your equity portfolio in 2024.

Read more »

Solar panels and windmills
Energy Stocks

1 Beaten-Down Stock That Could Be the Best Bet in the TSX

This renewable energy stock could be one of the best buys you make this year, as the company starts to…

Read more »

Dice engraved with the words buy and sell
Energy Stocks

Is Enbridge Stock a Buy, Sell, or Hold?

Here's why Enbridge (TSX:ENB) remains a top dividend stock long-term investors may want to consider, despite current risks.

Read more »

Gas pipelines
Energy Stocks

If You Had Invested $5,000 in Enbridge Stock in 2018, This Is How Much You Would Have Today

Enbridge's high dividend yield hasn't made up for its dismal total returns.

Read more »

Bad apple with good apples
Energy Stocks

Avoid at All Costs: This Stock Is Portfolio Poison

A mid-cap stock commits to return more to shareholders, but some investors remember the suspension of dividends a few years…

Read more »