This year has seen the stock market plunge to historical lows engineered by the coronavirus pandemic that shuttered most sectors of the global economy. Despite gains made last year being wiped out, some stocks have remained resilient with positive returns on investment.
Data presented by Buy Shares indicates that over the last one year, technology stocks had the highest Return on Investment at 44.84%. With an impressive ROI, the sector is leading the resurgence of the stock market. The healthcare sector which has played a key role during the pandemic has seen its stock have an ROI of 20.23%.
From the data, energy stocks and the real estate stocks have the worst ROI at -35.5% and -10.66% respectively, making them the biggest loss-making sectors. On the other hand, the crucial financial stocks had an ROI of -3.72%.
The Buy Shares report also overviewed the cumulative market capitalization of leading technology companies as of September1st. In total, the top tech companies have a cap of about $4.2 trillion. From the data, Microsoft has the highest market cap at $1.6 trillion.
Microsoft’s market cap is at least three times more than second-placed Apple which stands at $552.6 billion. The companies usually sell goods and services in electronics, software, computers, artificial intelligence, and other industries related to information technology.
Return on Investment refers to a performance measure for evaluating the efficiency of an investment in a given stock. ROI tries to directly measure the amount of return on a particular stock investment, relative to the investment’s cost. Determining the ROI of stocks is exceptionally important for measuring success over time and eliminating the guesswork to help investors make the right decisions.
Tech industry benefits from pandemic
From the data, most stocks still have lower ROIs even as businesses and investors are faced with the uncertain long-term economic impact of the pandemic. However, tech stocks have remained resilient. The current economic downturn has left them relatively unscathed because investors see tech firms benefiting from new trends such as remote working, cloud computing, and more telecommunications infrastructure, which have only been accelerated by the pandemic.
Before the pandemic, the tech stocks were still soaring thanks to slow economic growth, low inflation, and low-interest rates. These conditions mainly impacted mega tech companies leading a market rally before the outbreak. Post pandemic, these factors will continue to positively impact the companies position in the market. Furthermore, the growing importance of enterprise software corporate operations will keep tech returns positive in the coming years.
In the wake of a historical crisis, the stock market rally is usually spurred by the financial sector. However, in the current phase, tech stocks and pharmaceuticals are taking a lead. Consequently, they might become the new focus of investors on the road to recovery.
The healthcare sector which has been on the forefront to contain the pandemic has enjoyed a good rally. Investors found comfort in several branches such as pharmaceuticals and digital health, where the transition to remote services was quick as a reaction to the crisis. The sector is currently the center of attention over ongoing trials for a possible vaccine. In recent days, the emergence of a potential vaccine has had a positive effect on the entire stock market.
The stock market recovery path
The negative ROI stocks like the energy sector are casualties of the general decline in the market from March. During the period, volatilities of equities and oil spiked to crisis levels; and credit spreads on non-investment grade debt widened sharply as investors reduced risks. This heightened turmoil in global financial markets.
Towards the end of August, the stock market led by the S&P 500 hit a record high wiping out losses from the coronavirus sell-off and returning the market to pre-pandemic levels. Despite, the record high, some stocks are yet to fully recover.
Despite the stock market showing positive signs, there is still a bumpy ride ahead from the political front. It is not yet clear if the White House will approve further economic stimulus and how the US presidential election will play out.
For the most stock to recover post-pandemic, there is a need for effective planning and a review of how such a crisis impacts businesses on a short, medium, and long term basis. With such understanding, most businesses will be in a position to combat such financial meltdowns in the future.