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Market Crash 2020: Beware the Second Wave!

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Last Thursday, stock prices fell dramatically on fears of a second wave of COVID-19. The S&P 500 closed 6.5% lower than the day before, while the TSX slid a more modest 4.4%. These dramatic drops were eerily reminiscent of March, when COVID-19 fears triggered unprecedented stock market swings on an almost daily basis.

Reports of new cases in U.S. states like Texas and Arizona were the most likely culprits. States that re-opened from their COVID-19 lockdowns early saw cases spike last week, triggering fears of a second wave. This week, reports that China had re-introduced lockdown measures in Beijing added to these worries.

Nobody can tell what effect a second wave of COVID-19 would have on the stock market. It would depend heavily on measures taken to combat it, which as yet aren’t known.

However, some stocks would certainly be hurt more than others. I’ll explore that in just a moment. First, though, let’s take a look at the data that has triggered these renewed COVID-19 concerns.

Cases rising in some U.S. states

U.S. states like Texas and Florida saw a pronounced uptick in new COVID-19 cases last week. According to Worldometer, both states experienced their highest ever new case numbers on June 10: 2,437 in Texas and 2,625 in Florida.

Florida’s uptick in new cases was particularly sharp: its 2,625 new cases exceeded its second-worst day by more than 1,000 cases. The increases in new cases on the 10th was well publicized, occurring just a day before Thursday’s market crash. While it’s not certain that there was a causal relationship between the two events, it can’t be discounted either.

China re-introduces lockdowns in Beijing

Another significant event influencing second wave fears was a spike in COVID-19 cases in Beijing. For many months, China appeared to have the pandemic under control within its borders. This week’s outbreak in Beijing was unexpected, prompting the government to re-introduce lockdowns in certain neighbourhoods.

Implications for investors

A second wave of COVID-19 would be bad news for investors overall. While most regions are in the process of re-opening, a major spike in cases could bring lockdown measures back. We just saw this in China. If lockdowns are re-introduced in North America, it will cost travel, retail and hospitality businesses dearly.

On the other hand, plenty of businesses could survive such an event unscathed.

Consider Cargojet Inc (TSX:CJT) for example. In the first quarter, which saw widespread COVID-19 lockdowns, the company grew its revenue by 11.4%. As a small cargo airline, it ships e-commerce orders, which would likely increase if lockdowns were re-introduced.

As we saw in the first quarter, many shoppers increased their online purchases as retail businesses were closed. Cargojet benefitted from the surge in online ordering, not only surviving, but actually thriving during the lockdowns.

CJT is just one example of a stock that could survive a second wave of COVID-19 without too much damage. Other examples include utilities, tech stocks and grocery stores.

Stocks in these industries performed better than average during the COVID-19 lockdowns — and would likely do the same in the event of a second wave.

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 Andrew Button has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends CARGOJET INC.

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