Prepare for massive new opportunities in stocks as the response to the coronavirus reshapes the economy

The Federal Reserve on Thursday unveiled an unprecedented $2.3 trillion program to support the economy. New jobless claims, announced on the same day, surged to 6.6 million in the past week.

That said, massive opportunities in the stock market will arise because of a major shift in the post-coronavirus economy. Therefore, investors will want to emphasize stocks and non-broad-based ETFs. Those who don’t will get, literally, “average” gains via index funds and likely suffer ups and downs along the way.

Read:Fed announces new lending plans it says will provide $2.3 trillion in support for economy

Let’s see where those opportunities are. First, a chart.


Please click here for an annotated chart of the Dow Jones Industrial Average ETF
which tracks the Dow Jones Industrial Average

Note the following:

• This is a monthly chart to give investors a long-term perspective.

• The latest rise in the stock market is due to the Federal Reserve deciding to print $2.3 trillion more in new money.

• Since The Arora Report’s signal to buy stocks aggressively in March 2009, as shown on the chart, the stock market has had a major advance despite the recent drop related to the coronavirus.

• The chart shows that the recent rally in the stock market is about 65% related to a short-squeeze. In a short-squeeze, investors who have sold stocks short feel compelled to buy, leading to an artificial rise in the stock market.

• Investors have said there was no warning of the coronavirus. That’s untrue. On Jan. 22, The Arora Report’s call was that the coronavirus could cause a drop in the market. After finding that investors continued to buy stocks, I wrote on Jan. 30 that arrogance and greed among momentum investors “may prove to be dangerous for investors.” Other than a potential cure, the course of the stock market rally will depend on the behavior of “naked” investors. Please see “‘Naked’ investors — not coronavirus numbers — will determine how much stocks rally.”

Ask Arora: Nigam Arora answers your questions about investing in stocks, ETFs, bonds, gold and silver, oil and currencies. Have a question? Send it to Nigam Arora.

Major shifts in the economy

Take a look at the following in the context of how high the stock market has risen since March 2009:

• The government will become a bigger part of the American economy.

• Americans will have less privacy and fewer rights.

• The poor, the lower-middle class and the rich will do better as government programs will help them. The upper-middle class, such as professionals, will get squeezed with higher taxes.

• A segment of the population will start saving more.

• More people will work from home.

• Corporations will not want to own or rent as much office real estate as before.

• Online education will become more popular.

• Colleges and universities will come under financial pressure.

• The shift to cloud computing will accelerate.

• Telemedicine will become popular.

• More people will buy groceries online.

• There will be a golden age of biotechnology.

• Supply chains will shift closer to home.

• Consumers will hoard.

• Corporations will hold more inventory.

• Active stock and ETF pickers will shine.

• Investors will struggle with the potential of massive deflation first and eventual massive inflation.

• Many brick-and-mortar retailers will be in trouble and so will the shopping malls.

Stocks that will benefit

The biggest gains will come from stocks that most people have never heard of. At The Arora Report, we are on the hunt for such stocks. There will also be narrow ETFs that may significantly benefit. Examples of ETFs that may benefit are biotech ETF
as well as semiconductor ETF

Among popular stocks, semiconductor stocks such as Applied Materials
Micron Technology
and AMD
will benefit. Among large-cap tech stocks, Amazon
and Microsoft
will be big winners.

Shopping-mall REITs and stocks such as Simon Property Group
Federal Realty Investment Trust
and Kimco Realty
may get hurt.

Bear markets are characterized by sharp rallies. If a cure for the coronavirus is found soon, the rally will continue. In the absence of a cure, the probability is high that the rally will fail. Investors should use an objective framework for buying and selling. Please see “Stock market investors are asking ‘should I buy or sell?’ Here’s how to decide.”

Answers to your questions

Answers to some of your questions are in my previous writings. You can access them here.

Disclosure: Subscribers to The Arora Report may have positions in the securities mentioned in this article or may take positions at any time. Nigam Arora is an investor, engineer and nuclear physicist by background who has founded two Inc. 500 fastest-growing companies. He is the founder of The Arora Report, which publishes four newsletters. Nigam can be reached at [email protected]

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