Pandemic Upends the Risk Factor in Some Stocks
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Here's your Money Briefing for Tuesday, July 21st. I'm J.R. Whelan for The Wall Street Journal. The pandemic has turned a lot of things upside down. Our jobs, our shopping habits, and the stock market.
Shares that traditionally would be thought of as higher risk, like tech stocks, for example, or pharmaceutical stocks, have actually looked unusually safe during the market turmoil of the past few months.
That's our markets reporter, Karen Langley. Coming up, she'll explain why some sectors are performing uncharacteristically well during the pandemic and discuss investors' long-term view of the recent stock rally. That's after the break.
If you own any stock, you probably have a sense of what's risky and what's considered safe.
How has the pandemic flipped which stocks feel 'safe' and which feel risky?
But the pandemic has upended a lot of investors' assumptions about risk. For a look at how that's playing out in the markets, let's check in with our reporter Karen Langley. So Karen, which sectors have embodied the idea of an upside-down market during the pandemic?
Shares that traditionally would be thought of as higher risk like tech stocks for example or pharmaceutical stocks have actually looked unusually safe during this market turmoil that we've seen over the past few months. A lot of these stocks have made big gains and have actually been making overall relatively subdued moves in relation to the market rather than looking volatile. And then stocks of companies that are associated with working from home have also showed different behavior in relation to the market during this pandemic time. tools like Slack and Zoom that are being used by a lot of people who didn't used to work at home are seeing their shares do really well. And with a company like Zoom, it actually sometimes even does better when the market as a whole is doing worse, potentially because if things are continuing to look bad for the pandemic and the coronavirus, that could be good in terms of Zoom's business prospects for people working at home.
Now, you mentioned tech before, and it's got me thinking about the Nasdaq, which has risen more than 15 percent this year, hit a new record just on Monday. Which tech stocks are leading the rise?
Amazon, Microsoft and Apple have all seen big gains this year. And since the Nasdaq is weighted by market cap and those are really big stocks, their gains have had a really big effect pulling the index upwards. big tech stocks have looked pretty safe as investments during this period unlike many companies their business is not impacted by the same extent if people can't go out and about like they usually did before the pandemic. And many of the trends to do with working from home could even be good for tech companies. Of course, as people live, work, and even shop from home during the pandemic, lots of people are turning to Amazon even more than they did in the past for deliveries of all kinds of items.
But are there any warning signs against investors piling so heavily into tech?
Some investors note that some tech stocks are starting to look pretty expensive after their big gains this year. And tech companies also face challenges out there in the world with issues like data privacy concerns and also antitrust probes.
Now, before the pandemic, what were some of the most reliable sectors that investors could get into?
Utilities and real estate were typically considered to be defensive bets during a downturn, but they've actually suffered steep losses during this period, obviously disappointing investors who would have been counting on those kind of stocks to hold up during the downturn.
What have studies of the movement of individual stocks versus the broader market indicated?
Researchers at George Mason University studied a measurement known as beta that measures how stocks move in relation to the broader market. And they found that for many stocks, those relationships did look very different during the period in which the coronavirus was really having a big effect on the markets compared to beforehand, to last year. So for example, they found the technology stocks tended to post smaller moves in relation to the market during the pandemic time than they had previously.
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