Stock Market Trading During the Coronavirus Crisis

by Matthew Volfson

News

May 2, 2020

As the coronavirus crisis has worsened, the stock market has become increasingly fragile. It has shown signs of fatigue after a brief jump in mid-April.¹ The central government in the United States and other investors have put a lot of money into the stock market, explaining the big uptick in the overall stock exchange value.² They are expecting to receive a return from the stocks. 

Before further discussing the value of the stock market and the best stocks to buy in these times, as well as guidance on investing and trading stocks, one question needs to be answered: why did the stock market uptick in April, a time when the rapidly growing unemployment numbers in the United States had already reached seventeen million?³ The federal government had approved a stimulus package that would give 2.2 trillion dollars to individuals and companies in need of money. Companies affected by the pandemic received 500 billion of the 2.2 trillion dollars, while businesses deemed critical to the nation were given seventeen billion.⁴ Billions of dollars of federal money were invested in major and minor businesses in and out of the stock market. 

The government’s large stimulus package was the main catalyst for investing in mid-April, and it ultimately boosted the stock market. This investment was not without its issues, for many businesses are still closed, the unemployment numbers have reached thirty million, and corporations are not giving back to their investors in terms of selling and making profits from their products.⁵ Planes made by Boeing are still grounded, resulting in a decrease in value for Boeing’s stocks.⁶ The same could be said for the majority of American businesses on and off the stock market. There have been cracks showing in the originally strong market. The market, specifically the Dow Jones Industrial Average Index, one of the main indices for American stocks with NASDAQ, has recently plunged, dropping 200 points on April 30 after a strong month in April.⁷ 

Businesses and the stock market in general are starting to feel the brunt of the pandemic. Despite the growing instability of the stock market, there are a few stocks that could be great for investment: pharmaceutical stocks, the Volatility Index (VIX), and Amazon (AMZN). These companies and industries are being damaged the least by the coronavirus. Amazon is not being harmed as much as other corporations, for it controls the online retail industry, and many more people are choosing to place orders online now that the coronavirus crisis has forced them to stay inside.

Pharmaceutical companies, the corporations involved in the development of drugs to combat the virus, are benefitting from the pandemic as well. Companies such as Novavax (NVAX), Johnson and Johnson (JNJ), and Moderna (MRNA) are working on a highly needed cure for the coronavirus, making them generally good investments.⁸ Stocks in pharmaceutical corporations are a better long-term bet than Amazon, for they are likely to develop a drug that at least alleviates the symptoms of the coronavirus in given time. Even in the short term, pharmaceutical corporations are a good buy, as those in the field of medicine are urgently working toward a vaccine for the coronavirus. When a company makes a breakthrough in the field of medicine, the value of its stocks skyrockets, gaining the interest of investors. Pharmaceutical companies are a profitable day trade buy before they reach their peak value.  

Another area to watch and invest in is the Volatility Index (VIX), which increases in value when the market is more volatile, meaning that it changes in terms of value quickly and in an inconsistent way. The stock market had a jump in value in the middle of April, a result of the government stimulus package. The lack of production in corporations has led the market to begin dropping again and investors to demand their money back. Yet a jump in stock price, similar to the one in mid-April, may come in May, with the government in the process of approving another stimulus package.⁹ To benefit from the constant changing values of stocks, VIX would be a sound short-term investment. 

Most corporations, even some of the ones previously mentioned, will eventually lose some profits if the coronavirus crisis continues for a long period of time. The longer the coronavirus takes its toll, the greater the likelihood that the drops in the stock market will be even larger, with fewer workers being able to go to work. In this scenario, the last resort stock technique is to short sell. Short selling is a difficult endeavor, one which may be particularly hard for beginners, especially as the likelihood of losing money is higher. Short selling involves betting against corporations’ futures. It is an important measure of which corporations are overvalued, and it drags companies back to their realistic value. Before potential investors decide on short selling, they need to carefully research the method. 

The stock market is difficult to gauge. A beginner to stock market trading should start with simulations, such as Investopedia’s stock exchange simulation, which can be found at https://www.investopedia.com/simulator/, as well as reading many books on the topic. The learning process should be treated as seriously as preparation for a serious job. For someone looking to trade stocks as a hobby, watching videos on Youtube about stock market news from channels such as Capital.com and studying data on stocks, which can be found on NASDAQ and Yahoo Finance, are good ways to begin, and the Investopedia simulation is great for experiencing stock trading without using real money. To learn more about how to trade, the website How To Trade Stocks, with the link http://www.howtotradestocks.org, is helpful, and How to Day Trade for a Living by Andrew Aziz gives useful tips for simulated short-term daylight trading.

¹ Seeking Alpha Team, “The Stock Market Is Showing Severe Signs of Fatigue,” Seeking Alpha, April 24, 2020,
https://seekingalpha.com/article/4339825-stock-market-is-showing-severe-signs-of-fatigue.

² Katherine Greifield, “Nothing Is Certain but Bailouts: How Stimulus Works in a Vacuum,” MSN Money, April 18, 2020, 
https://www.msn.com/en-us/finance/markets/nothing-is-certain-but-bailouts-how-stimulus-works-in-a-vacuum/ar-BB12PFFS.

³ Chris Arnold, “Unemployment Money Not Reaching Millions of People Who Applied,” NPR, April 15, 2020, 
npr.org/2020/04/15/835174390/unemployment-money-not-reaching-millions-of-people-who-applied.

⁴ John Carney, “Here’s What’s in the $2 Trillion Virus Stimulus Package,” Bloomberg, last updated March 26, 2020,
https://www.bloomberg.com/news/articles/2020-03-25/what-s-in-congress-2-trillion-coronavirus-stimulus-package.

⁵ Andrew Soergel, “Record 30 Million Americans File for Unemployment in Six Weeks Amid Coronavirus Outbreak,” U.S. News and World Report, April 30, 2020,
https://www.usnews.com/news/economy/articles/2020-04-30/record-30-million-americans-file-for-unemployment-in-six-weeks-amid-coronavirus-outbreak.

⁶ David Fickling, “Coronavirus Has Popped the Boeing and Airbus Bubble,” Yahoo Finance, April 24, 2020,
https://finance.yahoo.com/news/coronavirus-popped-boeing-airbus-bubble-000005171.html.

⁷ Fred Imbert, “Dow Futures Fall Nearly 300 Points After Wall Street Wraps up Best Month in Three Decades,” CNBC Markets, April 30, 2020,
https://www.cnbc.com/2020/04/30/stock-market-futures-open-to-close-news.html.

⁸ Mark Reeth, “8 Pharmaceutical Companies Racing for a Vaccine,” Yahoo Finance, April 20, 2020,
https://finance.yahoo.com/news/8-pharmaceutical-companies-racing-vaccine-172710053.html.

⁹ Zack Friedman, “What Your Next Stimulus ‘Check’ Really Might Look Like,” Forbes, April 25, 2020,
https://www.forbes.com/sites/zackfriedman/2020/04/25/next-stimulus-package/#106bfc7a7cb1.