Putting hard-earned money in the stock market can make some people nervous.
It’s well known that a correction can occur at any time, and the fear of market crashes can make even the most seasoned investors to make questionable decisions.
While it’s true that putting your money on the line is never easy, the historical record of the stock market is virtually irrefutable: U.S. markets have consistently performed over long holding periods, even going back to the 19th century.
Market Performance (1872-2018)
Today’s animation comes to us from The Measure of a Plan, and it shows the performance of the U.S. market over different rolling time horizons using annualized returns.
Note: The animation uses real total returns from the S&P Composite Index from 1872 to 1957, and then the S&P 500 Index from 1957 onwards. Data has been adjusted for reinvestment of dividends as well as inflation.
Using just one-year intervals of time, the market can be a crapshoot. Unfortunately, if you were to just choose a one-year period at random, there would be a significant chance of losing money.
However, as the timeframes get longer – the animation goes to 5-year, 10-year, and then 20-year rolling periods – the frequency of losses rapidly decreases. By the time you get to the 20-year windows, there isn’t a single instance in which the market had a negative return.
Why Time Matters
Over 146 years of data, the chance of seeing negative returns for any given year is about 31%.
That fact in itself is quite alarming, but even more important to note is the distribution of returns in those down years. As you can see in the following chart also from The Measure of a Plan, it’s not uncommon for a down year to skew in the high negatives, just as it did during the crisis of 2008:
According to the data, there have been 10 individual years where the market has lost upwards of 20% – and while those off years are greatly outnumbered by the years with positive returns, it makes it clear that timeframe matters.
Past performance obviously doesn’t guarantee future results, but the historical track record in this case is quite robust.
Long-term investors can see that as long as their time horizon is measured in the decades, you can take the odds of making money in the stock market to the bank.
COVID-19 Crash: How China’s Economy May Offer a Glimpse of the Future
China has seen a severe economic impact from COVID-19, and it may be a preview of what’s to come for countries in the early stages of the outbreak.
The Economic Impact of COVID-19
China, once the epicenter of the COVID-19 pandemic, appears to be turning a corner. As the number of reported local transmission cases hovers near zero, daily life is slowly returning to normal. However, economic data from the first two months of the year shows the damage done to the country’s finances.
Today’s visualization outlines the sharp losses China’s economy has experienced, and how this may foreshadow what’s to come for countries currently in the early stages of the outbreak.
A Historic Slump
The results are in: China’s business activity slowed considerably as COVID-19 spread.
|Economic Indicator||Year-over-year Change (Jan-Feb 2020)|
|Investment in Fixed Assets*||-24.5%|
|Value of Exports||-15.9%|
*Excluding rural household investment
As factories and shops reopen, China seems to be over the initial supply side shock caused by the lockdown. However, the country now faces a double-headed demand shock:
- Domestic demand is slow to gain traction due to psychological scars, bankruptcies, and job losses. In a survey conducted by a Beijing financial firm, almost 65% of respondents plan to “restrain” their spending habits after the virus.
- Overseas demand is suffering as more countries face outbreaks. Many stores are closing up shop and/or cancelling orders, leading to an oversupply of goods.
With a fast recovery seeming highly unlikely, many economists expect China’s GDP to shrink in the first quarter of 2020—the country’s first decline since 1976.
Danger on the Horizon
Are other countries destined to follow the same path? Based on preliminary economic data, it would appear so.
About half the U.S. population is on stay-at-home orders, severely restricting economic activity and forcing widespread layoffs. In the week ending March 21, total unemployment insurance claims rose to almost 3.3 million—their highest level in recorded history. For context, weekly claims reached a high of 665,000 during the global financial crisis.
“…The economy has just fallen over the cliff and is turning down into a recession.”
—Chris Rupkey, Chief Economist at MUFG in New York
In addition, manufacturing activity in eastern Pennsylvania, southern New Jersey, and Delaware dropped to its lowest level since July 2012.
Other countries are also feeling the economic impact of COVID-19. For example, global online bookings for seated diners have declined by 100% year-over-year. In Canada, nearly one million people have applied for unemployment benefits.
Hard-hit countries such as Italy and Spain, which already suffer from high unemployment, are also expecting to see economic blows. However, it’s too soon to gauge the extent of the damage.
Light at the End of the Tunnel
Given the near-shutdown of many economies, the IMF is forecasting a global recession in 2020. Separately, the UN estimates COVID-19 could cause up to a $2 trillion shortfall in global income.
On the bright side, some analysts are forecasting a recovery as early as the third quarter of 2020. A variety of factors, such as government stimulus, consumer confidence, and the number of COVID-19 cases, will play into this timeline.
The Hardest Hit Companies of the COVID-19 Downturn: The ‘BEACH’ Stocks
As investor confidence across the travel industry slumps amid COVID-19, market capitalizations across ‘BEACH’ stocks shrink to unprecedented levels.
BEACH Stocks: $332B in Value Washed Away
The market’s latest storm has plunged the global travel industry into uncharted territory.
Since the S&P 500 market high on February 19, 2020, market capitalizations across BEACH industries—booking, entertainment, airlines, cruises, and hotels—have tumbled. The global airline industry alone has seen $157B wiped off valuations across 116 publicly traded airlines.
Investor confidence in cruise lines has also dropped. Between Carnival, Royal Caribbean, and Norwegian Cruise Line Holdings, over half of their market value has evaporated—equal to at least $42B in combined market capitalization.
Today’s infographic profiles the steep losses across BEACH companies. It looks at the ripple effects across individual companies and industries from the February 19 peak to date*.
*All numbers as of market close on March 24, 2020
Falling Off A Cliff
As the COVID-19 pandemic has spread to over 100 countries, many governments have implemented sweeping travel restrictions.
The impact across BEACH industries is far-reaching, with some valuations declining to nearly a quarter of their previous total.
|Company||Ticker||Category||Market Cap: 02/19/2020||Market Cap: 03/24/2020||% Change|
|Live Nation||LYV||Entertainment & Live Events||$16.3B||$9.1B||-44%|
|Six Flags||SIX||Entertainment & Live Events||$3.2B||$1.1B||-66%|
|Cedar Fair||FUN||Entertainment & Live Events||$3.1B||$1.3B||-58%|
|The Walt Disney Co||DIS||Entertainment & Live Events||$255.1B||$177B||-31%|
|Penn National Gaming||PENN||Entertainment & Live Events||$4.3B||$1.6B||-63%|
|Delta Air Lines||DAL||Airlines||$37.5B||$17.8B||-52%|
|Alaska Air Group||ALK||Airlines||$8B||$3.7B||-54%|
|Air Canada (in USD)||AC||Airlines||$8.3B||$2.8B||-67%|
|Carnival||CCL||Cruise & Casino||$30.8B||$10B||-67%|
|Royal Caribbean Cruises||RCL||Cruise & Casino||$23.2B||$7.5B||-68%|
|Norwegian Cruise Lines||NCLH||Cruise & Casino||$11.1B||$3.1B||-72%|
|Las Vegas Sands||LVS||Cruise & Casino||$52.8B||$35.1B||-34%|
|MGM Resorts International||MGM||Cruise & Casino||$16.2B||$6.2B||-68%|
|Wynn Resorts||WYNN||Cruise & Casino||$14.6B||$7.2B||-51%|
|Caesars Entertainment||CZR||Cruise & Casino||$10B||$4.2B||-58%|
|Eldorado Resorts||ERI||Cruise & Casino||$5.4B||$1.3B||-76%|
|Marriott International||MAR||Hotels & Resorts||$48.3B||$25.7B||-48%|
|Hilton||HLT||Hotels & Resorts||$31.3B||$19.4B||-38%|
|Hyatt Hotels||H||Hotels & Resorts||$9.1B||$4.9B||-46%|
|Choice Hotels International||CHH||Hotels & Resorts||$6B||$3.2B||-46%|
|Wyndham Hotels & Resorts||WH||Hotels & Resorts||$5.6B||$2.9B||-48%|
|Park Hotels||PK||Hotels & Resorts||$5.5B||$1.9B||-66%|
|Vail Resorts||MTN||Hotels & Resorts||$9.98B||$5.8B||-41%|
|Marriott Vacations Worldwide||VAC||Hotels & Resorts||$5.3B||$2.2B||-59%|
For instance, the consequences on various travel bookings brands have been severe. Booking Holdings, the parent company to Booking.com, Priceline, Kayak and OpenTable, witnessed share price declines of over 35% since the peak.
Across the entertainment industry, ticket sales for concerts, movies, and other events are falling precipitously due to cancellations or postponements.
Upwards of $5B in global film industry losses could result from the COVID-19 pandemic.
Chilling footage of the Las Vegas strip, as well as other tourist epicenters around the world, shows deserted streets as visitors opt to stay home instead.Bracing For Impact
Meanwhile, worldwide airline revenue is estimated to fall by as much as $113B in 2020.
In under two months, the share price of Delta Airlines has fallen over 50% as the company anticipates a capacity reduction of 40%, the largest in its history.
|Company||Ticker||Feb 19 2020 Share Price||Mar 24 2020 Share Price|
|Delta Air Lines||NYSE:DAL||$58.5||$26.9|
|Alaska Air Group||NYSE:ALK||$65.2||$28.9|
|Air Canada (in CAD)||TSX:AC||$45.3||$15.1|
The global airline industry—which employs over 10M people—supports $2.7T in global economic activity across an average of 12M passengers per day.
Aruba, Jamaica No More
As for the cruise line industry, global operations came to a 30-day standstill in mid-March. Over 800 COVID-19 cases and 10 deaths across three cruise ships have been discovered.
“COVID-19 on cruise ships poses a risk for rapid spread of disease, causing outbreaks in a vulnerable population, and aggressive efforts are required to contain spread.”
Carnival, a Miami-based company, has witnessed its share price fall to around one third of its February 19 value. Similarly, Royal Caribbean Cruises, which has seen its market cap plummet almost 70%, announced that it will suspend trips until mid-May.
As the hotel industry is impacted by the global outbreak, share prices have also realized a significant slump. In the U.S., an estimated $1.4B in revenue is vanishing each week. If occupancy levels fall by just 30% this year, the U.S. hotel industry could see approximately 4 million jobs wiped out.
The Baird/STR Hotel Stock Index, which serves as a benchmark for the sector’s overall health, has declined over 47% year-to-date.
Global Stimulus Response
A number of travel industries around the world are calling for stimulus packages.
On March 25, the U.S. Congress finalized a historic $2T deal, which includes $25B in grants for the airline industry. In the UK, officials are providing small businesses in hospitality and leisure grants that are worth up to $30,000 as part of its $400B bailout plan.
China, Germany, Italy, and Spain have outlined multibillion dollar proposals in response to COVID-19. Overall, at least eleven countries have announced stimulus plans along with the European Commission and the IMF.
When Will the Travel Wave Hit Again?
Amid the COVID-19 pandemic one thing is clear: the impact on the travel industry will have a marked effect on the broader economy.
Travel is closely linked with oil, as transportation accounts for over 60% of global demand. In Q2 2020, global oil consumption is projected to fall by 25M barrels per day.
Along with this, discretionary consumer spending makes up over one third of America’s GDP. The impact of the pandemic across this sector is expected to contribute to a 10% decline or more in U.S. GDP for the second quarter.
As conditions materially improve around the world—with China beginning to open up flights—positive signs are emerging from under the surface. Will BEACH industries quickly bounce back as infection rates drop, or will a slow and painful recovery unfold in the months ahead?
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