Today we have the results of our COVID-19 investor survey. Thanks to all who participated! First, some background information:
- 274 total completed surveys timestamped between Tuesday and Saturday.
- 81.0% of respondents from the US, 9.5% from Europe/UK, and the balance from rest-of-world including China, Africa, Canada/Mexico and Latin America.
- 96% of respondents were from the DataTrek community of professional buyside and sell side market participants. The remaining 4% came from social media.
Here are the replies to each question, with the most popular response in bold:
Question #1: When do you think China will contain the spread of COVID-19? (Choose one):
- Q1 2020: 6.2%
- Q2 2020: 44.2%
- Q3 2020: 23.7%
- Q4 2020: 14.2%
- 2021 or beyond: 11.7%
Our take: respondents believe COVID-19 will be an ongoing issue in China for at least a few more months, with the field essentially split 50/50 on containment before/after mid-year 2020. Translation: since China has to contain the virus before it can start to resume normal life, there is little consensus among our survey takers about a strong Chinese economic rebound in 2H 2020. This may be more of a 2021 story based on what we all know today.
Question #2: Do you think COVID-19 will cause a global recession (2 quarters of negative worldwide economic growth)? (Choose one):
- Yes: 24.5%
- No: 59.5%
- Unsure/No Opinion: 16.0%
Our take: there is some confidence here that the coronavirus will not cause a global economic contraction. Paired with the prior point, this means that respondents feel that even if the Chinese economy remains sluggish in 2020 the worldwide economy can still avoid a recession.
Question #3: Have you made any changes to either personal or client portfolios as a result of the potential risks posed by COVID-19? (Choose one):
- Yes: 33.9%
- No: 66.1%
Our take: that 34% of respondents reported having already shifted capital surprised us, but with Friday’s volatility it seems more likely that the 2/3rds who have not may consider such a move in the coming week. Put another way, there are still plenty of investors who have not responded to COVID-19 and could reduce risk if markets sell off further.
Question #4: Do you think the Federal Reserve will cut rates in 2020? (Choose one):
- Yes, because of the threat of economic contraction posed by COVID-19: 24.1%
- Yes, but not directly because of COVID-19: 36.9%
- No: 29.9%
- Unsure/No Opinion: 9.1%
Our take: just as Fed Funds Futures currently indicate, respondents believe the Fed will cut in 2020 (67% of those expressing an opinion). That belief is not necessarily tied to an impact of the coronavirus; 61% of those who believe the Fed will cut rates think other factors will drive that decision.
Question #5: Do you think COVID-19 will spread widely (+1,000 cases) through the US or Western Europe? (Choose one):
- Yes: 39.1%
- No: 47.8%
- Unsure/No Opinion: 13.1%
Our take: as of Sunday afternoon, the Johns Hopkins COVID-19 tracker (link below) counts 186 confirmed cases in Western Europe and 35 in the US. A sizeable percentage (39%) of respondents believe those numbers will grow meaningfully in the coming weeks. Less than half (48%) expressed confidence they will not.
Question #6: Do you believe the economic effects of COVID-19 will adversely affect US stocks this year? (Choose one):
- Yes: 56.2%
- No: 32.5%
- Unsure/No Opinion: 11.3%
Our take: most respondents took the survey before Friday’s downdraft, and there was still a narrow majority (56%) that saw COVID-19 hurting US equities. Whether they are willing to sit through any further volatility without reducing risk and feeding a vicious cycle of selling remains to be seen.
Question #7: Which major US stock sector do you think will be the most negatively impacted by COVID-19? (Choose one):
- Technology: 33.6%
- Consumer Discretionary: 20.8%
- Energy: 19.3%
- Industrials: 12.8%
- Consumer Staples: 2.2%
- Financials: 1.8%
- Comm Services/Health Care: 0.4% each
- No impact to any of these sectors: 8.7%
Our take: almost three quarters (74%) of respondents chose Tech, Discretionary or Energy, which were 3 of the 4 worst performing sectors on Friday. Worth remembering: Amazon is 26% of the Consumer Discretionary sector, the same as the combined weight of the next 4 names: Home Depot (10.7%), McDonald’s (6.5%), Nike (5.0%) and Starbucks (4.1%). That means the group not only has sizeable China exposure, but also that the sector’s anchor tenant is a 72x forward earnings stock.
Question #8: How worried are you at present about your personal health and that of your immediate family with respect to COVID-19? (Choose one):
- Very: 2.2%
- Somewhat: 31.8%
- Not at all: 66.1%
Our take: despite the virus’ very limited US presence to date and 81% of respondents based in America, just over a third (34%) reported either a lot or at least some personal concern about COVID-19. That’s an important market observation, because investors concerned about their personal health are more likely to have bearish assessments of its macro effects.
Specifically, those respondents who were very/somewhat concerned about their personal health:
- Were more likely to believe COVID-19 would cause a global recession (36% vs. 25% for the survey as a whole).
- Were more likely to have already made portfolio changes due the virus (46% vs. 34%).
- Think the Fed will cut because of COVID-19 (36% vs. 24%).
- Believe COVID-19 will spread widely in the US/Europe (59% vs. 39%)
- Believe COVID-19 will hurt US stocks (70% vs. 56%)
- Worth noting: despite all this, the “very/somewhat” concerned subgroup was actually slightly more convinced the Chinese outbreak would be contained in Q2 2020 (46% vs. 44%).
Question #9: Do you expect to travel less in 2020 than last year due to concerns about COVID-19? (Choose one):
- Yes: 25.5%
- No: 70.1%
- I do not travel: 4.4%
Our take: while a quarter of respondents saying they will travel less in 2020 may look like a limited impact, it is not good news for the travel/leisure sector where marginal customers drive profitability. Similar to the prior point, this shows that concerns over personal safety are already informing economic decisions.
Pulling together these findings we come to 3 conclusions based on the survey results:
#1: The combination of personal safety concerns about COVID-19 and uncertainty about potential near-term positive catalysts like Chinese containment likely means a continuation of Friday’s volatility and further near-term declines for US/global equities. We rarely make short term market calls, and perhaps the Fed will suddenly reverse course this week, but that’s what the survey data is stage-whispering to us.
#2: The de-risking playbook is clear: sell Tech, Consumer Discretionary and Energy and buy Staples and Health Care. Communication Services did OK in our survey, but it is too overweight high-valuation names like Google and Facebook to be a safe haven. Financials held up relatively well on Friday, but an inverted yield curve is a headwind for the group.
#3: On the plus side, only a quarter of respondents see COVID-19 causing a global recession. While US corporate profitability will see a ding in 1H 2020, the virus’ economic effects should not be enough to lower investors’ earnings expectations meaningfully. That should be enough to limit stocks’ reaction to a pullback rather than a full-on rout.
Final thought: another heartfelt “Thanks” to all who took the survey and supported DataTrek’s goal of providing you data-centric, actionable investment insights. We appreciate you!
Johns Hopkins COVID-19 tracker: https://gisanddata.maps.arcgis.com/apps/opsdashboard/index.html#/bda7594740fd40299423467b48e9ecf6