 Hi guys, it's Eddie from the desk here in London Some of you may have not seen me before I'm actually involved in the other side of Amplify trading's business basically covering capital markets but today we're going to be covering top-sector trends for Trading the coronavirus investing for the coronavirus So I'm going to be discussing some of the things that I've been watching As it's kind of unfolded over the last few weeks and months And hopefully you'll take something away from Understanding about the different sectors and how they've responded to the coronavirus And identifying some long and short Opportunities and some short and longer term plays. So let's kick into it So the topics we're going to be covering today just to introduce myself Here's a picture of me in Frankfurt actually last week Covering equity capital markets trading through our IPO simulation for Morgan Stanley in Frankfurt So that's kind of my day-to-day going round top investment banks and asset managers and training their analysts And interns but I also deliver our simulation technology all over the world really All different universities LSE Oxford Cambridge Assad Frankfurt All over the world really So today we're going to be covering the market impact of coronavirus Have a look at the S&P year-to-date performance and the daily performance today I've actually been sat on the trading floor all day today, and it's been a pretty crazy Creek crazy day. It's definitely been a crazy week Very very volatile. So hopefully this is going to give you some insight into the movements of the different asset classes and why We're going to have a look at the typical economic cycle And the impact on the different sectors We're going to go through an investing checklist for some companies I think you should be looking at all the characteristics and red flags for some companies that you should be looking at We're going to discuss the fangs and some top picks from from my perspective And what some companies that I'm looking at that could potentially benefit from this coronavirus, which is obviously Kind of a terrible thing to say Where this is a crisis and obviously Lots of people are getting ill and dying Which is very very unfortunate, of course There are some companies that you can look at that can take advantage of this including things like zoom Video conferencing as people kind of work from home, but we'll get into that later I'm gonna have a look at the Fed policy I think you can't talk about markets at the moment without Discussing the Fed monetary policy decision. I think it was just on Tuesday where they cut 50 basis points, which was very Shocking even though I actually wrote a LinkedIn post I think three hours before saying that they needed to cut now and cut hard And I think that's definitely one of my luckier calls timing wise where it kind of they kind of Saw my posts. I wouldn't I'm sure And actually then did cut 50 basis points, which was quite shocking to the market But given the market pricing that I mentioned in the post I think it was inevitable and they needed to do it as there was a tightening in financial conditions We're gonna look at some of the different sectors So airlines consumer staples energy sectors and some factors that you should be looking out for if you're investing or trading in this environment So first of all, let's have a look at the COVID-19 coronavirus impact There's been a hundred thousand cases now total confirmed But one thing that the media kind of don't talk about and they kind of like to I wouldn't say fear monger but there's a lot of 55,000 56,000 people that have actually recovered from the virus I think the death rate or the official death rate is around three percent. So it is Not as bad as the media perhaps are making out to be it's definitely something we should be watching it's having a big impact on financial markets People are gonna get infected. I think that's that's definitely a reality now But I actually don't think the mortality rate is and the death rate is As bad as maybe people fear. I think people will get infected But the majority of them will recover I definitely think the impact of the COVID-19 the coronavirus is going to be large It's definitely in my opinion going to get worse before it gets better. But I do think it's Temporary so I'll talk a little bit more about this from a company perspective But I think for a lot of companies, there's gonna be demand shocks definitely But in a lot of kind of scenarios I think this demand is going to be delayed rather than completely destroyed and I'll talk about What companies that is and why but this is a call from JP Morgan just today And I'm definitely of the ilk to to believe this as well Over the last few days and this week Volatility is back even today the VIX was trading at 50 Which is quite alarming and the S&P 500 has swung more than three percent five times in eight sessions I think the Dow also had the second largest point swing where it was up 1300 and then down 1300 So definitely conditions that you should be wary of when trying to you know trade in this environment short-term But I think that this could potentially Provide some opportunities for long-term investors if you're looking from a portfolio management perspective Here's the S&P 500 year-to-date performance Again quite shocking actually when you think about this has kind of been on the the kind of news headlines So much in the kind of severe severity of the virus and how it's spreading But that the impact on the year-to-date performance of the S&P 500 is shocking when you actually look at it Where we see all these massive down days in the US equity industry futures for example But yet Amazon Microsoft are up, you know four or five percent Apple Google pretty much flat on the year Okay, there has been some severe You know Price movements for the energy sector. So Exxon is a company that I'm going to talk about later. It's been beaten up Oil has just touched $41 a barrel quite sharply down I think it was down 7.5 percent today and I'll talk about why that is This has definitely had an impact on some energy stocks The S&P 500 today's performance. So you can see what's a bit of a bloodbath Google Microsoft Apple Amazon down, you know 2% 3% again It's the energy stocks are going to get hit from this kind of lower Oil price as a result of slower economic growth globally and the implications of the virus lower demand So it was I guess a supply shock Where it originated as that so it would is it's going to affect the supply chains of the tech names like you might have read for Apple for example in Amazon However, it has translated to lower oil prices for oil stocks as well The traditional economic impact of the cycle on different sectors I believe we are kind of entering this kind of recessionary phase But here's just a breakdown of different sectors Financials consumer discretionary technology industrial materials consumer staples health care energy telecom and utilities And then in this kind of recessionary phase Defensive sectors tend to outperform. So your consumer staples utilities telecoms health care They produce a kind of consumer staples. So your toothpaste phone services energy Prescription drugs just because we're in a recession People need their prescription drug drugs They need electricity. They're not going to slow their demand and they tend to do quite well in this type environment Utility stocks. I'm going to talk about that just later in this kind of video But they tend to have higher dividend yields Which can you know provide some return for investors as they kind of seek the safety of a you know stable dividend The underperformers tend to be those kind of cyclical names. So industrials Technology and those consumer discretionary think kind of luxury goods things like that and as you can see by this graphic You can see the the kind of Sectors and then the impacts where we get to that kind of late and recessionary phase Just some names just so you can kind of put some names to the sectors. So we've got Exxon, of course Down very big. I think down 35 percent year to date As a result of the kind of factors I talked about the oil price the global growth picture slowing down Boeing United Technologies Johnson and Johnson Proctor and Gamble. These are some big names in the sectors that you can see just so you can put some kind of Context to it again, then probably more common or well-known fine names So Facebook, Amazon, Netflix, Google, etc Of course sitting in the kind of information technology and communication sector And obviously the performances of these sectors tends to differ in this type of environment. I think the essential Things that you should be looking at and I've kind of got a laundry list here When you are trading and investing in this environment I think the attractive characteristics of companies that you should be looking for definitely are low leverage companies Companies with strong balance sheets those with secular headwind tailwind. Sorry. So things like tech technology Strong and stable cash flow that high ability to service their debt and their interest payments So high things like high interest coverage ratios or EBIT to interest expense high cash flow to debt ratios Things like that look for quality companies with strong balance sheets If this kind of coronavirus epidemic is temporary, which I believe it will be And the lots of commentators do believe and fingers crossed it is temporary This demand is not going to be eliminated. It's just going to be pushed to later quarters and perhaps 2021 so what you need to do is identify companies that are able to withstand this temporary demand shock Because they will have a big bounce Let's say in six months time. Hopefully For example, if the virus then does start to kind of weaken in its severity the potential red flags I would say are highly levered and of course has been emphasised the amount of corporate debt has ballooned Just as a result of this cheap money aka low interest rates globally those Companies with weak balance sheets. So low cash that aren't able to Kind of they don't they're not very solvent. They're not very liquid. You know, they have weak and kind of volatile cash flow So temporary demand shocks Through revenue and then obviously flowing to their cash flows. They're going to be in quite a lot of trouble So those companies with low interest coverage ratios low cash flows of debt You're going to want to from my opinion stay away from again most sensitive You see it the travel so your cruise cruises your airline So Deutsche Lufthansa expect over the next few weeks They just announced that they're going to have 50% less capacity over the next few weeks those kind of Companies tied to large events and then global growth definitely So let's have a look at some of the Fang name. So the fangs obviously your Facebook Apple Amazon Netflix Google They represent obviously the most popular and best performing. I think Microsoft and Google Names like that were up up to 90% last year. They have pulled back And I think from a long-term portfolio management Perspective you should be looking at these names. Definitely From a shorter term perspective, I do believe in my opinion. They do have some more Downside, but if you're looking, you know, if you were looking at these companies in Q4 last year, you know They had an incredible run. So if you were looking at these names at those levels They're some of them have fallen, you know, 20% Over the last few days or weeks So if you're looking from a long-term portfolio management perspective, these could be good times to add to your portfolio You shouldn't try and time the market you can you could get her and you probably will get her Trying to catch a falling knife Is gonna is gonna hurt But if you're looking from a long-term perspective and you do believe that this virus is temporary Which I do and lots of big commentators do then these names are gonna come roaring back Their supply chains will be affected and demand will be weaker over these next few months But from a valuation perspective, they are extremely elevated if you look at median to Enterprise value to sales and if you look historically these names are extremely Rich in their value from some metrics perspective My top picks so the coronavirus winners if you want to call them that Gleed So they're actually producing late-stage Charles to evaluate the artificial medicine As a curative treatment for the disease and they've had a really good run recently names like zoom zoom and slack are two names where You've seen that some major corporations so Deloitte, Goldman Sachs, HSBC, for example Have been saying to their employees. You need to work from home now. So I definitely think Companies like zoom slack have really big upside potential but zoom for example was up a lot last year So it is very elevated and quite rich in its valuation Already, but I do think there is some more short-term upside as people seek to work from home They're gonna need to video conference They're gonna need to communicate with their teams and slack and zoom are two good ways of doing this lift an uber They've been really beaten up and I think this is Tied to you know, if people aren't flying people aren't traveling then the majority of their revenues are actually Transporting people of course around the cities, but also picking people up from airports and things like that Lift an uber had a big bit of a rebound in the second half of last year And I know JP Morgan for example and something banks have actually said, you know, they fall in 20 or so percent this year as a result This coronavirus that demand shock You know, they've got a really good opportunity if you believe in that secular kind of trend That they they're obviously participating in the cloud name. So again the ones we just talked about alphabet Amazon Adobe Microsoft they all have a lot a large proportion of their revenues being kind of Generated by cloud services. So if you believe that cloud services and kind of that kind of technology technological angle is going to be You know facilitated during this crisis. These are good names to look at Another point for lift an uber is the margins that they can generate If people are not taking the subway or the tube There could be attractive options for lift an uber, right? So if you don't want to take the tube, you might call an uber as that demand Potentially starts to rise and I saw some screenshots of some uber and lift rides. There were actually $160 just from one end of New York to another This is obviously the surcharges that they're implementing as a result of the demand of people not one wanting to kind of take the subway As they fear that it may it might put them at, you know, a higher risk of you know, conducting the virus So these are my topics of names that I'm looking at right now again Ali Baba similar story people staying at home your Netflix Again people consuming these at home Mobile doctors for example that have seen a big kind of lift in China So people kind of want wanting to discuss their symptoms with an online GP Again, these are names that you should be looking at or at least I'm looking at Utilities have had a you know, it remained particularly resilient. So they're the only sector Still positive year today as you can see from the euro stocks year today. They're up about 10% travel and leisure Automobiles oil and gas, you know, the biggest losers from this group and they tend to perform well during recessionary climates Recession or not. You need energy like we just talked about and you've seen the top performers EDF energy up 34% Year today national grid up 10% the lower yields and the lower yield environment Like we've just seen the US 10 year hitting 0.75% or even lower 0.66% today German boons at negative 0.7% today Investors like the fact that utilities do offer high dividend yields in those kind of highly regulated kind of industries They do typically offer investors more stable and consistent dividend from that perspective and less price volatility So this is something a sector that's kind of outperformed recently relative to the rest of the market Again, we can't talk about Markets of the moment without the Fed This move did shock the market and this graphic basically indicates when the Fed and Bank of China both cut rates by 50% In the same month Obviously, there was some tough times that kind of an interview from that think dot-com bubble and financial crisis I think they had no choice but to loosen financial conditions as they were too tight given the market pricing but again, this has major implications for Banks for example This is going to put severe pressure on their net interest margins Even though the volatility that's ensued at the moment, you know will in my opinion Definitely provide upside for trading revenues and trading profits and the lower rates may actually Kind of stimulate a refinancing boom So think mortgages for example if you can refinance your mortgage at a lower rate now That's going to be attractive. So banks. We're going to talk about later But this is going to you know, provide some headwinds for them potentially This is just a graphic showing the US tenure that I just mentioned this gravitational pull Towards zero percent. I think with the interest rate differentials around the world in Europe in Japan I think this is now a done deal and I think US rates are heading 20% we saw the biggest one-day drop Since 2009 on the 30-year yield buns at 0.75% negative 0.75% US 10 years down 55% in two weeks. I think this is a majority of different factors But I think people reallocating capital From the equity markets to the bond markets and this is kind of seen this big move Downwards and yields upwards in price the Euro stock bank index like I was just talking about Stocks bank stocks in Europe and the US will tend to move with yields and in this case It's going to be downwards. There's going to be the pressure on the net interest margins trading revenues will be up But central banks I think have a mandate to ensure the liquidity and availability of credit for these small to medium-sized Enterprises to ensure that this doesn't kind of this market. I don't want to say panic But volatility translates into the financial system They need the Federal Reserve and central banks across the world need to ensure that there is that availability of credit for small to medium-sized Enterprises so they can facilitate the kind of temporary demand shocks to their revenues and cash flows US banks like you like I just kind of mentioned. They're not doing much better the Euro stock bank index is 20 down with 25% in 13 trading days And this is definitely mirrored by US banks. They're down around 22% from that February 2020 high This is all the things I've just been talking about in terms of their kind of the pressure on the banks Consumer staples so there are some winners from this coronavirus like I mentioned in the in a previous slide But Costco and Kroger actually reported their earnings Yesterday and this is a short-term play on the temporary demand, you know People are going to these supermarkets and actually hoarding You know disinfectant gel toilet paper and in their latest earnings results They actually mentioned that the uptick in demand had a 3% positive impact on the total and comparable sales So they're seeing a big upside. So these are two names. You should be looking at Costco and Kroger Up over the last few days, but still I do think if this persists, which I obviously will There's going to be a you know a shift in demand You know to the near term Quite different to Apple. So like I was talking about the demand is not going to be eliminated in my opinion for iPhones and iPads for example, it's just going to be delayed. So there is more short-term pain I believe for the fine names like Apple due to the supply chain kind of Disruptions, but I think that demand will come back online and people will start to demand iPhone 11s For example, just in later quarters when hopefully this virus has passed the big trade at the moment Like you've seen is airlines So the jet ETF has dropped 14 in the last 15 sessions It's down about 30% in the last 10 days Matching the impact of the 9-11 aftermath, which is obviously terrible. Like I mentioned earlier, Deutsche Lufthansa They've announced that their flight capacity is down 50% in the coming week So airlines are getting hit quite severely You know on this kind of virus and here's a graphic showing the turbulence ahead potentially for airlines part of the pun the limited spreads Scenario so this implies a 63 billion loss of passenger revenues. That's 11% worldwide in 2020 critical spread of the virus scenario Estimates 113 billion loss of passenger revenues 19% worldwide in 2020 so I think this is definitely a short term short Airlines are going to continue to be hit as a result of this kind of Kind of people attending and traveling events for example is going to be down. So they're going to get hit But there will be a point where these airlines particularly those that are strong with strong balance sheets and cash flows Like I mentioned are going to be resilient and they will be the winners When this virus is over if they can withstand this temporary kind of demand shock So the bull case is previous disease outbreaks have peaked after one to three months And there's no way of telling if corona virus is going to be done before the summer in three months It's not looking that likely But the point is they've recovered to pre-outbit break levels previously historically as a good indicator Six to seven months after so if you're looking at these kind of strong Kind of balance sheet positioned companies There could be some good opportunities there for a bounce if you're a long-term investor Again oil prices down 7.5 percent today 242 dollars a barrel. This is going to have massive Implications for the energy sector So they're down big Exxon isn't it's down about 30 percent year to date and you can see the energy sector XLE ETF is coming to a really key level a 10-year key level, but there's going to be Some opportunities I think for a long-term investors. So names like Exxon mobile They're trading at a very attractive three times EBITDA with a 6.7 percent dividend yield And this is a common phrase kind of in markets is don't buy a company just for its yield because it could be wiped out in one day Like we've seen over the last few days But there will be some opportunities for companies like Exxon that have been historically profitable if they can diversify their revenues and their business models into this cleaner energy Kind of hydrogen Renewables if they can pivot to these kind of areas for the long term I think they could be in a really good position and this could be a potential long-term play For the near term, I think short term There's going to be some more pain for these energy names and it is approaching this key level here But if you are a long-term investor definitely names to look at The fact is to watch out for so this is kind of winding down to the end of this video But the virus is indirectly causing the drop in yields and the causing the volatility that we see And it is the potential and I think when why markets are reacting the way they do Is because there is potential for this to lead to a recession, okay? It's not directly causing the stock markets to fall, but it's indirectly triggering the potential for a recession For example in the US and a dramatic revision downwards to global growth When you look globally Asia obviously China the most severely affected But I think there could be some more downside because I believe that I think people are pricing in the the kind of impact to the Chinese You know country and markets, but we haven't really seen it too prominent in Europe and the United States yet So if you look at it from that perspective if markets have reacted the way they have Just the outbreak in kind of China and Asia and kind of slowly spreading into the Europe and US What happens when you know there is this, you know, it hits the peak severity for Europe and the US, you know, how are people going to feel? I think the P in the price-to-earnings ratios have to come down dramatically Last year we had we saw huge multiple expansion And I think if there is revisions down to earnings that kind of denominator in the price-to-earnings ratio This is when we could see real carnage in markets. I believe if we do see revisions down I think heading into the year people were kind of expecting earnings to remain resilient or You know slightly to the upside if there are earnings revisions down was we're gonna see You know equity markets definitely react to this if like we saw today was we saw $41 a barrel oil If we do see $30 a barrel oil, this is gonna lead to a lot of bankruptcies the break-even rate For the US companies is around $40. So how long they can remain resilient in that kind of oil condition Will remain to be seen. I think the availability of credit and liquidities Small to medium-sized enterprises in Europe in the United States if the banks can't lend to them or you know They kind of pull back their liquidity There's gonna need to be action like we've seen in East in Europe with the ECB Announcing tilt rows. I think there could be you know similar measures taken by the Fed You know, they've only got a hundred basis points now to play with from a monetary policy perspective There's talks about fit fiscal stimulus packages. But again, that has to be passed obviously by Congress, so the president takes it to Congress and there's obviously Doubts about due to the parts of nature of the Republicans and Democrats whether that would even pass So I think the key now for kind of the Federal Reserve and central banks all over the world Is that availability of credit the financial system has to remain? to provide liquidity to basically Provide a buffer for these companies to withstand these short-term temporary Hopefully demand shocks to their revenues and their and their bottom lines. We will see continued volatility But I think the key indicator for that is it is bearish. I think we saw some big updates So yesterday the you know equity industry futures rock around 5% and you know You kind of think are everything's great again from a psychological perspective But we tend to see these kind of big moves upwards after multiple down days In times of severe stress so the financial crisis The dot-com bubble and even going back to the 1930s and the Great Depression This is when we see these kind of wild bounces and wild swings in markets. I think this is not a financial You know financial services issue at the moment But just remember or it's worth kind of remembering that the mortgage-backed securities crisis This was actually not you know due to the bank, right? It was the mortgage market that kind of caused this tight It's a very tightening of financial conditions and illiquidity in the market So definitely be watching financial institutions at the moment credit spreads are continuing to widen and right now Just today we saw the US credit market Gage Gage surge more than the least the most since at least 2011 So these are the key factors to look look out for If you enjoyed this video, I know we touched on a lot of subjects If you want to see more videos, please like subscribe the channel leave your comments If you enjoyed it or if you wanted me to elaborate on more points or make more videos on different topics We have covered a lot, but definitely leave your comment below and we'll get some more videos out there Thanks