It feels like the world is moving at a slower pace. Everything is shutting down; people stay at home and it is almost as if everything will have remained the same when we get back to normality. The truth is: day after day, the numbers change at a speed that is revealing itself more challenging than ever.
On February 19th, the US stock market closed at a record. The peak of an 11-year bull market led by tech giants, whose trendline was soon to be broken by a selloff triggered by the Covid-19 Coronavirus outbreak.
As the global pandemic spreads worldwide, it constrains supply and lowered demand, which compromise the activity of companies. Consequently, investors who see their stocks losing value tend to sell them to avoid losing more, leading to a significant drop in prices.
March 12th saw the biggest drop in the stock market since the 1987 market crash as the Dow Jones Industrial Average, the S&P 500 and Nasdaq dropped into bear market territory and ended the 11-year bull market which followed the 2008 crisis.
However, for some this situation is seen as a rare opportunity to buy Tech’s Big Five on the cheap, Alphabet (Google), Amazon, Apple, Facebook, and Microsoft which were the leading forces of the bull market that has now come to an end.
These have lost a combined $1.4 trillion in market value since the marked peaked, not only because they are based in two of the most severely affected areas in the US, Seattle (Microsoft and Amazon) and San Francisco – Silicon Valley (Apple, Alphabet and Facebook), but also due to the threat to supply chains dependent on Chinese manufacturing which led to a slowdown.
Apple was the first major tech company who showed concerns regarding the coronavirus outbreak. In mid-February, Apple stated that it did not expect to meet its quarterly revenue forecast because of lower Chinese demand, in which Apple’s revenue relies heavily, and also due to the lower iPhone supply globally.
Shortly after Apple had announced that quarterly expectations wouldn’t be met, Microsoft warned that it would miss quarterly guidance during a week that had seen a market selloff amid fears about Covid-19.
Nevertheless, the company’s Azure cloud business is growing rapidly and there’s a growth in the cloud-based service offerings. Additionally, Microsoft announced that it has now 44 million active users for Teams, having signed up 12 million new users in a week.
Despite having to close a warehouse due to the positive results of workers for Coronavirus, Amazon continues to see a surge in retail demand as social distancing and self-quarantine have become daily normality.
The company is planning on hiring 100,000 additional workers in responseto the increase in orders and is set to gain meaningful market share now that e-commerce has become the best option to avoid contact with others.
Alphabet (Google) and Facebook
As for Alphabet and Facebook, these are two ad-driven companies who are surely bound to feel the impact of the virus.
An important share of Alphabet’s Google revenue comes from travel related advertising, which is one of the main sectors whose activity is already suffering.
On the other hand, Facebook doesn’t focus so much on traveling but is still vulnerable to a withdrawal from brand-related advertising. However, user activity has skyrocketed in the last few weeks as WhatsApp and Messenger calls have doubled.
Overall, the pandemic has had repercussions in the entire market and has surely welcomed us to the fastest bear market in history, Tech’s Big Five have felt the effect of the virus in a time where their products offer us an opportunity to overcome daily challenges that come with social distancing.
Article published in our March Newsletter
Taíssa Santos, BSc in Management