One of the biggest stories on the stock market in the past few weeks has been, without a doubt, the damage wrought by the coronavirus, otherwise known as COVID-19. The disease is spreading globally, leading markets to pull back as concerns grow over just how much economic damage the outbreak will cause.
Investors have been in these situations before though, and the appropriate move is simple: don’t panic. If investors can keep their nerves, they could make huge sums of money.
The coronavirus is yet another in a long string of potential epidemics. Now, I’m not a health expert by any means, but I am a media hound who has seen this play out several times before.
In the early 2000s, it was SARS. Back then, the fear was especially pronounced in Toronto, Ontario, Canada. Many in that city believed there was a bona fide pandemic. In the end, a few hundred people died worldwide. Not exactly the second coming of the Black Plague.
In the 2010s it was Ebola. A devastating disease to be sure, with a death toll in the thousands, but again, the world didn’t collapse.
And now we come to the coronavirus which, due to its communicable nature, has been spreading beyond China. And with that spread comes uncertainty and panic, two surefire ways to make the stock market drop.
We’re seeing that right now, with the market bouncing up and down, largely motivated by concerns about the COVID-19 outbreak.
On top of that, we have companies like Moderna Inc (NASDAQ:MRNA), a pharmaceutical company whose shares recently shot up by more than 20% due to its potential coronavirus vaccine.
All this is to say that we’ve seen this kind of thing play out before. As a student of media, I can tell you exactly why this happens again and again: the news companies make money when people are scared.
The more that they play up COVID-19 as the potential end times, the more that people will tune in to see just how close to the apocalypse they are—and what they can do to keep themselves safe.
It’s not exactly a healthy relationship that has been cultivated between the media and consumers, but it’s the one we have. And until that changes, we can expect to see many more panics about epidemics.
Which isn’t to say that the coronavirus may not be deadly or debilitating, but I don’t think the panic is warranted (at least not yet).
And that brings us to the opportunity to see huge gains: by playing the stock market long.
There’s going to be volatile times ahead as the stock market fluctuates in relation to COVID-19. The ups and the downs will come hard and fast. When markets are set to peak and trough like this, investors who play the game right stand to make huge amounts of money.
We’re talking single-day gains of 20% or more when buying low, as well as big gains for those willing to short on the downtrend. In either case, the coronavirus outbreak could create a lot of gains for investors who know where to invest.
We’re about to see stocks hit lows that could bring solid gains to savvy investors. And that’s because we’re reaching peak panic for COVID-19.
Guggenheim Partners, LLC’s Scott Minerd is sounding the alarm in a big way. The chief information officer of the global investment firm said that the fallout from the virus outbreak could be “worse than the financial crisis.” (Source: “Coronavirus Fallout Could Be Worse Than the Financial Crisis,” Axios, February 28, 2019.)
Minerd said there was “cognitive dissonance” in the stock market as share prices hit new all-time highs in mid-February, saying he had never “seen anything as crazy as what’s going on right now.” (Source: Ibid.)
It’s worth noting that Minerd is a member of the New York Federal Reserve’s investor advisory committee, and that officials have contacted him to create “some sort of monetary coordination.” What this likely means is that the world’s central banks are planning to cut interest rates and/or provide other types of economic stimulus.
And that, dear reader, is a big opportunity. Interest rate cuts usually spark growth among share prices and tend to provide an atmosphere conducive to higher stock prices.
Combine that with what I believe will be a weaker-than-anticipated shock to the market via the coronavirus and you have a perfect storm to buy stocks low and sell high.
The COVID-19 outbreak is a case study in market overreaction, or at least I believe it will be seen as that soon enough.
Some people, like Minerd, have been comparing the current situation to the financial crisis of 2008. Others are saying the coronavirus could wreak calamity across the stock market. Frankly, it’s a lot of hand-wringing over something that, if history is any indicator, will likely be just another scare.
But just because COVID-19 might not live up to the hype, it doesn’t mean investors can’t make immense amounts of money while the markets are in turmoil. Being able to predict the market’s next move—especially when many others bet that something different will happen—is a tried and true recipe for success.
Moderna Stock Provides Another Opportunity
Notwithstanding everything I’ve written above about the market likely to overreact and overcorrect due to the coronavirus, there’s a way to hedge your bets just in case COVID-19 does prove to be a legitimate concern for world markets.
And that brings us to pharmaceutical stocks. Whenever there’s a global health concern, you’d expect the companies that make health their business to be in high demand.
And that’s exactly what we have been seeing.
Chart courtesy of StockCharts.com
As mentioned above, Moderna stock received a juicy boost following its submission of a potential coronavirus vaccine to U.S. researchers for testing. Its share price rose by more than 20% by early afternoon on February 26. (Source: “Biotech Company Moderna Says its Coronavirus Vaccine Is Ready for First Tests,” CNN, February 26, 2020.)
Impressively, the company was able to develop that vaccine in just six weeks. This is the pharmaceutical industry, however, which means months upon months of testing and trials before medications can be released to the public.
On top of that, there will likely be many other pharmaceutical companies looking develop a vaccine or treatment for COVID-19.
As such, there are going to be a lot of opportunities to make some serious profits off of coronavirus vaccines or treatments. The question is which company is likely to fulfill that promise.
Moderna was the first company to throw its hat in the ring. But first doesn’t always mean best.
MRNA stock had been falling and needed something strong to pull it back. A successful coronavirus vaccine would be precisely that kind of win. It’s not certain that the company’s vaccine will work out, but that’s the risk one always runs when investing in the pharmaceutical industry.
Whether the coronavirus will turn out to be the end of the world is yet to be determined. What is certain, however, is that there will be a good way to eke out earnings on the stock market no matter what happens.
If it turns out that the COVID-19 outbreak is, like so many other epidemics before it, more hype than reality, than we can expect a healthy bounce in the stock market as investors regain their nerves.
If, on the other hand, it turns out to be a very serious disease that derails the stock market—at least in the immediate future—then we can expect many pharmaceutical stocks to shoot up as they promise to develop a vaccine or treatment for COVID-19.
In either case, there’s going to be immense opportunity. These are exciting times indeed, and when times get exciting, smart investing can go a long way.