Stock Market Crash 2.0: Where to Safely Park Your Investments?

Summary

• Canada’s economic recession along with recent uncertainty in global equity markets has created fears of another stock market crash.
• Most industries suffered in the COVID-led March market crash, but tech and gold stocks escaped unscratched.
• In case of another stock market crash, investors need to mitigate losses and pre-plan their defensive moves.
• Apart from tech and internet stocks, investors should watch out for health care and consumer stocks.

Investors’ concern over the second wave of coronavirus cases and looming elections in the United States has sparked massive sell offs across global equities markets. After a week-long volatility and tech stocks’ slide, leading benchmark indices across the world once again slipped on Monday, September 21.

This uncertainty in the global markets was visible from the first week of September when big tech stocks slipped, entering correctional territory.

During the pandemic-led market crash in March, most information and technology and gold stocks escaped unscratched. Tech rallied on the new-found homebody economy, while gold glittered for being a safe asset.

But in the last three weeks, tech stocks have started faltering. Meanwhile, an S&P projection claims gold price may lose its momentum following the 28 per cent boost in 2020. To top it all, the Canadian economy is officially in recession.

These conditions have led to elevated market volatility and investors’ sentiments are on the edge. The question on everyone’s mind is: Is stock market crash 2.0 on the horizon?

(Source: Individual Market Indices)

Stock Market Crash 2.0

Seventeenth century scientist Isaac Newton famously said, “What goes up, must come down.” Rallies and crashes are an inevitable part of stocks markets, just like the bears and bulls.

The year 2020 started on a strong note, and then the pandemic struck. The unprecedented global pandemic shook up world economies, forcing them to tank to levels unseen since 1930s.

The benchmark TSX index is down 6.34 per cent year-to-date. While it is yet to recover the lost ground in 2020, markets are abuzz with talks of another impending crash.

Some of the factors that could risk another potential stock market crash in Canada are:

• Lockdown 2.0 due to second wave of the COVID-19 virus.
• Political uncertainties at home and abroad
  • Canada may go for snap polls if Prime Minister Justin Trudeau fails floor test.
  • Democrats vs Conservatives and the policy ambiguities surrounding the upcoming November’s US elections.
• Canada’s economic recession and job market: Jobs are returning, but that has more to do with re-openings than new hiring.
• Lack of business continuity (especially for small and medium-sized entities) and reduced disaster recovery support.

Please note, equity market gyrations are subject to various macro and micro economic trends and it is hard to predict any stock market movement in advance.

Market Crash 2.0: Where To Park Investments?

Most industries suffered in the COVID-led March market crash. But aviation, transport, arts and entertainment, and service-related sectors were the worst hit. These industries will continue to face disruptions in a potential market crash 2.0 scenario, triggered by the second wave of virus cases.

To mitigate losses, investors need to pre-plan the defensive moves and shift funds to potential earning industries and stocks such as the following:

1. Tech Stocks

We’re not talking about big tech stocks such as Shopify (TSX:SHOP) or Constellation (TSX:CSU), which are already at an astronomically high price. Investors can watch out for upcoming tech stocks such as Nuvei (TSX:NVEI) or Lightspeed POS (TSX:LSPD) or Dye & Durham (TSX:DND) or Real Matters (TSX:REAL).

Despite the month-to-date losses, the TSX tech index is currently up over 35 per cent this year and may rally again in case of market crash.

2. Internet & Cybersecurity Stocks

Technology is nothing without data and internet connectivity. With the exception of BCE Inc (TSX:BCE) and Shaw Communications (TSX: SRJ.B), most internet and communication stocks are flying under the radar. Some of the 5G stocks are Enghouse Systems (TSX:ENGH), Telus Corporation (TSX:T), etc. Investors should also track the upcoming IPO of Canadian satellite communications company Telesat.

Rise of internet and tech stocks has resulted in increased incidents of cyberattacks. Trader must zero in on upcoming trends in cybersecurity ecosystem and invest in stocks such as Absolute Software (TSX:ABT) and BlackBerry (TSX:BB). 

3. Health Care Stocks

The unprecedented global pandemic has forced the health industry to transform and push out top-notch digital platforms. The Canadian health care space is ripe for disruption and stock market 2.0 will further thrust the spotlight on this industry. Innovations will likely be aimed at improving virtual tools, implement precision medicine and smashing daily roadblocks. WELL Health Technologies (TSX:WELL), Viemed Healthcare (TSX:VMD) and StageZero Life Sciences (TSX:SZLS) are three health care stocks investors can explore.

4. Consumer Stocks

Shopping will never be the same, but consumer stocks will occupy a higher plateau in case of another market crash. While the physical retail space may collapse, online and e-commerce retailers like Walmart Canada (WMT: US) will come to the fore (already happening!). Consumers will hoard essential items in the face of an impending lockdown, giving a boost to supermarket chains such as Dollarama (TSX:DOL) and Metro (TSX:MRU).

5. Investment in ESG

The pandemic has also pushed institutional investors to divert funds in equity based on environmental, social and governance (ESG). Most trending stocks such as tech companies rate high on the ESG parameters due to their relatively low environmental polluting risk factors.

The sustainability movement is growing, and the pandemic has put the focus on ethical companies with a strong ESG report. As per a Deloitte study, ESG assets will touch US$ 35 trillion by 2025 in the United States alone, pressing the case of more fund flows into ESG.

Apart from ESG Exchange-traded funds, investors can watch out for companies in clean tech sector such as electronic vehicle maker GreenPower Motor Co (TSX:GPV) or portable battery developer Electrovaya (TSX:EFL).