Pandemic Upends the Risk Factor in Some Stocks

Summary

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Podcast Summary: WSJ Your Money Briefing

Episode: Pandemic Upends the Risk Factor in Some Stocks
Date: July 21, 2020
Host: J.R. Whelan
Guest: Karen Langley, Markets Reporter, The Wall Street Journal

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Overview

This episode explores how the COVID-19 pandemic has turned traditional stock market risk assessments upside down. Stocks typically considered risky, such as those in the technology and pharmaceutical sectors, have become surprisingly stable, while sectors previously seen as defensive, like utilities and real estate, have underperformed. The discussion centers on which stocks are thriving, the reasons behind this shift, and whether these trends are likely to persist.

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Key Discussion Points & Insights

1. How the Pandemic Upset Traditional Market Risk (00:36–01:42)

• Traditional risk perceptions are challenged: Stocks generally considered volatile, like tech and pharma, appeared safer during the pandemic's market turmoil.

• Tech and pharma stability: These sectors experienced big gains and less volatility compared to the broader market.

• Work-from-home beneficiaries: Companies providing remote work tools (e.g., Slack, Zoom) saw stock surges, sometimes rising even when overall markets declined.

  "Shares that traditionally would be thought of as higher risk, like tech stocks, for example, or pharmaceutical stocks, have actually looked unusually safe during this market turmoil that we've seen over the past few months."
  — Karen Langley (01:42)

• Zoom’s unique position: It often performed inversely to the market, benefitting as remote work became more entrenched.

  "With a company like Zoom, it actually sometimes even does better when the market as a whole is doing worse."
  — Karen Langley (02:29)

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2. Tech Sector’s Leading Role in Market Gains (02:46–03:45)

• NASDAQ’s rise: The index climbed over 15% in 2020, leading markets due to tech’s surge.

• Key contributors: Amazon, Microsoft, and Apple, as market cap giants, pulled the index up considerably.

• Resilience in the pandemic: Tech companies' business models (online commerce, cloud, remote work tools) made them less vulnerable to social restrictions.

  "Amazon, Microsoft, and Apple have all seen big gains this year... Big tech stocks have looked pretty safe as investments during this period."
  — Karen Langley (02:56)

• Acceleration of trends: Increased demand for tech due to shifts in work, life, and shopping during lockdowns.

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3. Warning Signs for Tech Investors (03:45–04:06)

• High valuations: Some investors warn that tech stocks are becoming expensive as their prices soar.

• External pressures: Ongoing risks include data privacy issues and antitrust investigations.

  "Some investors note that some tech stocks are starting to look pretty expensive after their big gains this year. And tech companies also face challenges...with issues like data privacy and antitrust probes."
  — Karen Langley (03:49)

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4. Formerly 'Safe' Sectors Take a Hit (04:06–04:28)

• Utilities and real estate underperform: Previously defensive sectors suffered steep losses, confounding expectations.

• Investors disappointed: Those who relied on these stocks for stability in downturns were let down.

  "Utilities and real estate were typically considered to be defensive bets during a downturn. But they have actually suffered steep losses during this period."
  — Karen Langley (04:11)

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5. New Findings on Stock Correlations and Volatility (04:28–05:23)

• Research on beta: George Mason University researchers found that the beta (a measure of volatility relative to the market) for many stocks shifted significantly during the pandemic.

  • Tech stocks had smaller market movements (less volatile).
  • Defensive sectors like real estate showed increased volatility.

  "...they found that for many stocks, those relationships did look very different during the period in which the coronavirus was really having a big effect...tech stocks tended to post smaller moves...real estate stocks...made larger moves..."
  — Karen Langley (04:33)

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6. Will These Patterns Last? (05:23–05:48)

• Future uncertainty: Investors are unsure if these new patterns will persist or if stocks will revert to historical norms.

• Big remaining question: It's uncertain when traditional measures of volatility will reassert themselves.

  "Some investors note that these new patterns...may not hold long term and that stocks...may revert back to those past patterns at some point. The big question, of course, is when?"
  — Karen Langley (05:27)

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Notable Quotes & Memorable Moments

• Tech vs. traditional safety:

  "Shares that traditionally would be thought of as higher risk...have actually looked unusually safe..." (Karen Langley, 01:42)

• On Zoom as a market indicator:

  "...if things are continuing to look bad for the pandemic and the coronavirus, that could be good in terms of Zoom's business prospects for people working at home." (Karen Langley, 02:35)

• Warning on tech stock prices:

  "Some tech stocks are starting to look pretty expensive after their big gains this year." (Karen Langley, 03:49)

• Shifted patterns in risk:

  "...those relationships did look very different during the period in which the coronavirus was really having a big effect..." (Karen Langley, 04:33)

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Timestamps for Important Segments

• Pandemic upends risk and safe stocks: 00:48–01:42
• Tech and work-from-home winners: 01:42–02:46
• NASDAQ and big tech's influence: 02:46–03:45
• Warnings for tech investors: 03:45–04:06
• Struggles for utilities/real estate: 04:06–04:28
• New research on beta and volatility: 04:28–05:23
• Uncertain future of stock market patterns: 05:23–05:48

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Tone and Style

The episode features measured, data-driven discussion typical of financial journalism, with clear explanations and a focus on actionable investor knowledge. Expert commentary is concise, emphasizing both current trends and the uncertainty of future market behavior.

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This summary covers the episode’s central themes and provides a clear roadmap of the discussion for listeners who missed the episode, combining quoted insights and structured analysis of the market shifts during the pandemic.

Transcript

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[Small Business Owner]

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[Electronic Payments Coalition Spokesperson]

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[J.R. Whelan]

Here's your money briefing for Tuesday, July 21st. I'm J.R. whelan for the Wall Street Journal. The pandemic has turned a lot of things upside down. Our jobs, our shopping habits and the

[Karen Langley]

stock market shares that traditionally would be thought of as higher risk, like tech stocks, for example, or pharmaceutical stocks, have actually looked unusually safe during the market turmoil of the few months.

[J.R. Whelan]

That's our markets reporter Karen Langley coming up. She'll explain why some sectors are performing uncharacteristically well during the pandemic and discuss investors long term view of the recent stock rally. That's after the break. If you own any stock, you probably have a sense of what's risky and what's considered safe. But the pandemic has upended a lot of investors assumptions about risk. And for a look at how that's playing out in the markets, let's check in with our reporter Karen Langley. So, Karen, which sectors have embodied the idea of an upside down market during the pandemic?

[Karen Langley]

Shares that traditionally would be thought of as higher risk, like tech stocks, for example, or pharmaceutical stocks, have actually looked unusually safe during this market turmoil that we've seen over the past few months. A lot of these stocks have made big gains and have actually been been making overall relatively subdued moves in relation to the market rather than looking volatile. And then stocks of companies that are associated with working from home have also showed different behavior in relation to the market during this pandemic time. Tools like Slack and Zoom that are being used by a lot of people who didn't used to work at home are seeing their shares do really well. And with a company like Zoom, it actually sometimes even does better when the market as a whole is doing worse, potentially because if things are continuing to look bad for the pandemic and the coronavirus, that could be good in terms of Zoom's business prospects for people working at home.

[J.R. Whelan]

Now you mentioned tech before and it's got me thinking about the Nasdaq, which has risen more than 15% this year, hit a new record just on Monday, which Tech stocks are leading the rise.

[Karen Langley]

Amazon, Microsoft, and Apple have all seen big gains this year. And since the NASDAQ is weighted by market cap, those are really big stocks. Their gains have had a really big effect, pulling the index upwards. Big tech stocks have looked pretty safe as investments during this period. Unlike many companies, their business is not impacted by the same extent if people can't go out and about like they usually did before the pandemic. And many of the trends to do with working from home could even be good for tech companies. Of course, as people live, work, and even shop from home during the pandemic, lots of people are turning to Amazon even more than they did in the past for deliveries of all kinds of items.

[J.R. Whelan]

But are there any warning signs against investors piling so heavily into tech?

[Karen Langley]

Some investors note that some tech stocks are starting to look pretty expensive after their big gains this year. And tech companies also face challenges out there in the world with issues like data privacy concerns and also antitrust probes.

[J.R. Whelan]

Now, before the pandemic, what were some of the most reliable sectors that investors could get into?

[Karen Langley]

Utilities and real estate were typically considered to be defensive bets during a downturn. But they have actually suffered steep losses during this period, obviously disappointing investors who would have been counting on those kind of stocks to hold up during the downturn.

[J.R. Whelan]

What have studies of the movement of individual stocks versus the broader market indicated?

[Karen Langley]

Researchers at George Mason University studied a measurement known as beta that measures how stocks move in relation to the broader market. And they found that for many stocks, those relationships did look very different during the period in which the coronavirus was really having a big effect on the markets compared to beforehand to last year. So, for example, they found the technology stocks tended to post smaller moves in relation to the market during the pandemic time than they had previously. And on the other side of things, a stock like real estate stocks that would be considered more defensive traditionally actually made larger moves in relation to the market during the coronavirus time than they had previously.

[J.R. Whelan]

But are investors bracing for even more changes in the market going forward?

[Karen Langley]

Some investors note that these new patterns in how different stocks tend to move in relation to the market that they may not hold long term and that stocks traditional, you know, expectations of volatility in relation to the market, that they may revert back to those past patterns at some point? The big question, of course, is when?

[J.R. Whelan]

All right, that's Wall Street Journal markets reporter Karen Langley. Karen, thanks for coming on the show.

[Karen Langley]

Thanks so much.

[J.R. Whelan]

And that's your Money briefing. I'm J.R. whalen, for the Wall Street Journal.

[Small Business Owner]

Access to affordable credit helps me pay my employees, but I don't really need it.

[Retail Industry Representative]

Infliction is killing me, but who cares? Big retailers are making record profits. That's why we support the Durbin Marshall credit card bill.

[Small Business Owner]

See, banks and credit unions help small businesses make payroll. This bill would cut the vital resources

[Retail Industry Representative]

they need while increasing megastore profits. They deserve it, don't they?

[Electronic Payments Coalition Spokesperson]

Tell Congress. Stop the Durbin Marshall money grab for corporate megastores paid for by the Electronic Payments Coalition.