Will the Effects of Coronavirus Outlive the Pandemic Itself?
As parts of the world may be seeing a plateauing of new coronavirus cases and some are even starting to talk about reopening at least parts of their economies, investors are hoping for a V-shaped recovery once restrictions are lifted.
However, the economic and psychological damage wrought by the outbreak may outlive the pandemic by a wide margin, according to an article in the Wall Street Journal.  Individuals, shaken by the severe economic contraction may become more risk-averse.
This may present an opportunity for investments, such as the Armor US Equity Index ETF (ARMR), that are defensive in nature.
We are living through what may become the deepest economic downturn since World War II. A new generation of investors who have lived through the longest economic expansion and bull market in history are now discovering that stocks can also decline.
This realization may change the way that these investors view equity investments for a long time. It may cause investors to become more risk-averse. It may also cause them to hold less equities in their portfolios.
Younger Investors May Be More Sensitive
The WSJ article highlighted that younger investors may be more sensitive to economic news because their experience is shorter than an older person who has been through bad times before. This may cause the current younger generation of investors to be more pessimistic about returns and risky assets and has the potential to push them into more conservative, or defensive, portfolios.
The article also pointed out research from the University of California, Berkeley, which found that long-term attitudes toward risk are affected by the personal experience of investing when younger. Those who started out with years of poor performance tended to avoid stocks, while those who grew up in better times were less influenced by a downturn in equity performance.
Potential Economic Impact
The economic impact also cannot be ignored. Risk aversion may result in individuals becoming more reluctant to take risks, such as starting new businesses. Corporate executives may be more reluctant to invest in riskier, but potentially more lucrative, projects.
The article also mentioned threats such as the debilitating effect of long spells of unemployment if the crisis takes longer to resolve, the threat of faster deglobalization if borders are closed or, at the very least, tightened, the political pressure for more government spending and higher taxes, and the grand scale of debt being taken on by both the public and private sectors.
Might Pandemics Be the New Normal
There is also the risk that pandemics may become the new normal and will need to be incorporated into asset prices. It may make investors more hesitant to take risks.
Even if the pandemic comes to be regarded as a one-off, many people may still be reluctant to socialize, travel, shop, and attend concerts and sporting events in the future, affecting the economy for years to come.
Where May Investors Turn for an Equity Investment That Offers the Potential for Downside Protection?
The Armor US Equity Index ETF (ARMR)
The Armor US Equity Index ETF (ARMR) seeks to provide investment returns that, before fees and expenses, correspond generally to the total return performance of the Armor US Equity Index. The index is designed to provide exposure to the sectors of the US equity market that the fund’s index provider believes are most likely to generate positive returns while providing downside protection and experiencing lower volatility relative to the US equity market
 Mackintosh, James, Coronavirus Scars Might Weaken Economy for Years to Come, The Wall Street Journal, 4/12/20
The outbreak of COVID-19 has negatively affected the worldwide economy, individual countries, individual companies and the market in general. The future impact of COVID-19 is currently unknown, and it may exacerbate other risks that apply to the Fund.
Past performance does not guarantee future results. Short-term performance may often reflect conditions that are likely not sustainable, and thus such performance may not be repeated in the future.