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The wrong end of the trend

Certainly, the Federal Reserve’s unscheduled 50 basis point rate cut this week, the first cut of more than 25 basis points since December 2008, sends a clear signal that worries over its impact are growing. Other central banks are likely to follow suit, including both the Bank of England and European Central Bank. Such intervention has so far had only a mildly soothing effect on the market mood, though, perhaps because investors are waking up to the reality that, as Mr Bearbull speculates on page 20, past good times cannot last forever. 

Just how investors respond to this uncertainty is dependent on individual circumstances, not least how much their time until retirement and appetite for risk limits their ability to absorb losses. Hanging on and picking up good companies as they dip is one option he highlights, and there have been some rays of light amid the market gloom this week. Take Greggs (GRG), for example, whose shares are down this week despite impressive results on Tuesday – daily queues at its St Paul’s branch suggest it has worked out what customers want, and adds weight to the argument that panic selling in tough markets could see the baby chucked out with the bathwater.

Just because a share has fallen does not make it a bargain, though, and the virus appears to be exposing some of the fundamental weakness inherent in certain sectors and companies. Take Cineworld (CINE), for example, whose shares are down by a fifth this week on concern that any significant dip in customers could prove existential to a group that has gambled on a debt-fuelled expansion splurge. Coronavirus isn’t the only thing potentially keeping people away from its cinemas – streaming services are becoming a genuine substitute, especially as companies such as Netflix (US:NFLX) are now producing award-winning films that never appear in cinemas. Netflix’s shares have risen this week, along with other ‘stay at home’ stocks that appear to be benefiting from virus fears. 

And while coronavirus worries may prove temporary, they could still accelerate some of the technologically-driven changes in behaviour we are witnessing – a shift from cash to e-payments, more online shopping, or the adoption of remote working where a third factor is at play: climate change concerns, and the notion that much business travel could and should be avoided. For the companies that are on the wrong end of these trends, coronavirus could indeed prove a fatal blow.