The coronavirus has had a lot of effects on the economy and the stock market.
The Nasdaq has set new all-time highs,while the S&P 500 is getting close to it's pre-crash high.
Look past the major indices though, and there's a lot of interesting things happening
The NASDAQ's new highs, and most of the S&P 500 recovery have been powered by a handful of the world's largest technology companies which have been performing extremely well. This makes sense given that the virus has people staying home and spending much more time online. Many stocks have continued to struggle as the economic recovery has stalled out.
There are two other themes developing in the market that are worth keep an eye on for investors.
Bailing on Bad Decisions
As often happens in times of crisis, multiple firms have used coronavirus as an excuse to cut failed lines of business that were doomed with or without a pandemic. Coca Cola (KO) recently decided to drop the Odwalla juice brand entirely and focus on core brands that have been successful. The company didn’t put the blame entirely on coronavirus but companies would rather blame failures on outside forces than poor decision making. These decisions are often good for the long-term health of companies, even if the timing may seem overly convenient.
Pivoting to COVID-19
The even more interesting shift going on right now though is the trend of companies shifting their focus to COVID-19 related businesses. Several companies that hadn't done much in their previous fields recently decided to get into the coronavirus-treatment game. This is where investors need to be extra cautious the surge in price is often followed by a consistent decline.
Consider FSD Pharma (HUGE), which recently forfeited its cannabis license in order to focus on treatments of COVID-19. FSD’s cannabis business had been falling below expectations for a while and the company's new product, an anti-inflammatory compound, may be useful in treating some COVID-19 patients. Investors reacted overwhelmingly positively to the news as well with the stock price jumped nearly 50% after the announcement. FSD has no marketable products currently, and has been issuing new shares, before and after the announcement, to fund itself. It is possible that this move could pay off, but it seems like an extremely long shot.
More recently, Kodak (KODK) said it is entering the pharmaceutical business, while also announcing that it was receiving a $765 million loan to make ingredients used in pharmaceuticals as part of the government's response to the COVID-19 crisis. The stock exploded on the news with its share price hitting $33.20 on July 29 after trading for only $2.10 at the end of the previous week.
Kodak, the once-iconic film company, has made simular pivots before. The company announced a new blockchain product at the height of bitcoin mania in 2008. That announcement also sent the stock soaring, but the product, Kodakcoin, no longer even warrants a mention in the company's quarterly filings.
A number of other small biotechnology companies have recently announced plans to see if their drug candidates or other nascent products can be used to treat COVID-19.
Some of these products may end up being huge successes, but what is undeniable is that investors currently have a huge appetite for coronavirus-related investments and respond overwhelmingly positively almost any news on the subject. Yes there is some opportunity here, but these share-price spikes aren't likely to be long-lived for most of these companies.
One needs only to look back at what happened to many of the stocks that pivoted to blockchain, or suddenly entered the marijuana business to see what can happen when small companies suddenly become involved in whatever line of business seems like the hottest thing in the stock market.
