coronavirus – – Tradingsim

Wall Street is in a bull market. However, self-employed people still have to navigate hard financial issues. They don’t have the luxury of traditional IRAs or restricted stock units. However, when they’re trying to save for retirement, there can be options.

A simplified employee pension(SEP) plan is one way that a self-employed person or an independent contractor like a day trader can still save for retirement. This TradingSim article will explain how a self-employed person like a day trader working from home can open a SEP. This article will also help business owners find the best SEP for them.

What is a SEP IRA?

A simplified employee pension plan is a retirement savings plan that small business owners establish for themselves and their employees.

Howard Pressman is a financial planner with Egan, Berger & Wiener in Vienna, Virginia. He said SEP IRA’s are a great retirement saving option for business owners or independent contractors.

“SEP IRAs and solo 401(k)s are great options for self-employed people and should be considered by anyone wishing to save for their future,” said Pressman.

How can a self-employed person open a SEP IRA?

If a self-employed person wants to open a SEP, they must file paperwork with the IRS. In addition to that paperwork, an entrepreneur can file through Form 5305-SEP. However, there are exceptions. If an employer already has another 401k retirement plan or has leased employees, they may not be able to use that form.

Then, entrepreneurs should consult a financial planner to find the best account provider for them. After consulting a financial planner, business owners must set up a SEP IRA for their employees.

Ryan Repko is a certified financial planner at Ruedi Wealth Management. He maintains that SEPs are simple to set up.

“SEPs are very easy to establish and have virtually no filing requirements, which makes them very attractive for small businesses,” said Repko.

Where can a self-employed person open a SEP?

Greg Wells is vice president of EP Wealth Advisors. He recommends places where people can open SEP IRAs.

“We recommend one of the discount brokerage firms who have no setup fees, no maintenance fees, extremely low trading cost and commission-free options,” Wells says. “[Charles] Schwab, Fidelity and TD Ameritrade are all great low-cost options, and easy to work with if a client is up against the deadline.”

Financial experts give SEP advice

Todd Youngdahl, a certified financial planner, said it’s affordable to set up a SEP.

“In most cases, there is no set-up fee for a SEP IRA and no annual custodial or maintenance fee,” Youngdahl says.

Wayne Bland is a financial planner for Metro Retirement Plan Advisors. He advises employers to set up SEPs with an Employee Identification Number (EIN). Bland says that’s a better option than using their own social security numbers.

“I’ve never seen anyone set up a SEP under their own social security number, it’s always been under an EIN number,” said Bland.

How is a SEP different from a traditional IRA?

In many ways, SEP IRAs are similar to traditional IRAs. With both, IRA holders must wait until they’re 59 1/2 to make tax-free withdrawals. Once an account holder is 72, there are required minimum distributions. These mandatory withdrawals are the same for both types of accounts.

While a traditional IRA may seem more advantageous, a SEP could have more benefits for business owners. Traditional IRAs have lower savings limits than SEPs.

In 2020, self-employed people can contribute either 25% of their income or up to $57,000 a year, whichever is lower. That’s a $1,000 increase from 2019.

Archie Ponce is a certified financial planner and executive vice president of Optima Asset Management. He noted that self-employed people contribute more to SEP IRA’s than traditional IRA’s and stretch IRAs.

SEPs lets self-employed save money

“SEP IRAs provide the self-employed business owner the ability to contribute a potentially larger amount than a traditional or Roth IRA,” said Ponce.

Chad Parks is the founder and CEO of the retirement plan provider Ubiquity Retirement and Savings. He noted that SEPs can help people save with higher saving limits in the accounts.

“If you earn $19,500 and want to put it all into a self-employed 401(k), you could. That would reduce your taxable income to zero,” said Parks.

Jim Hitt is the founder of American IRA. He notes that his company can be a great option for self-employed people saving for retirement.

“We wanted to show people that there’s more than one way to shear a sheep. In other words, there’s more than one way to plan for retirement. And for people who are already independently-minded-such as the self-employed-a SEP can be a great way to store a lot of money for retirement,” said Hitt.

Can employers have SEPs and other IRAs?

While self-employed people can contribute to a SEP, they can choose other retirement plans as well. Dave Cherill is a certified public accountant in New York. He said that there is important criteria to consider when choosing between a SEP IRA and solo 401k.

“The first criteria most people use in choosing between a SEP and a solo 401(k) is how much can I contribute to it?” said Cherill.

Cherill says the solo 401k could be best for self-employed people with more limited income.

“Normally the solo 401(k) allows for a greater contribution, especially in cases where there is limited self-employed income,” said Cherill.

However, Cherill sees the SEP as a more cost-effective retirement account for the self-employed and small business owners.

“The SEP is simply easier from a cost and administrative perspective,” said Cherill.

Wayne Bland is a financial advisor for Metro Retirement Plan Advisors. He wants his small business clients to get traditional IRA’s if they have more than 10 employees.

“Once they get 10 or more employees they usually start looking at 401(k) plans or other options,” said Bland.

Ferrigno reminds his clients that with SEPs, they can’t make withdrawals from the accounts before they’re 59 1/2 without penalties.

“There’s no ability to take early distributions from the account if you retire prior to 59.5 as some other qualified plans may allow,” said Ferrigno.

What kinds of businesses can open SEP IRAs?

SEP IRA’s are available for many different kinds of small businesses. Brad Ronsley is a certified financial planner. He says that SEPs are a good option for small businesses.

“SEP IRAs are available for a variety of small-business types. They include sole proprietorships, partnerships, limited liability companies, S corporations and C corporations. The plans can be an especially attractive option for a small business with few employees, ” said Ronsley.

How did coronavirus impact SEP IRAs?

As a result of COVID-19, many entrepreneurs have started saving more of their income to weather the economic storm. If they are investing on their own in a volatile market, there is even more uncertainty. However, business owners can start small to open a SEP.

Rick Irace is the head of service and operations for Ascensus’ retirement division. He advocates for any business owner to save whatever they can for retirement.

“Every little bit helps when it comes to saving for retirement,” said Irace.

“Someone who is stretched thin financially can start by simply setting 1% of their pay aside,” added Irace.

While Irace wants investors to save as much as they can, other financial advisors disagree. Michael Kojonen, president of Principal Preservation Services, recommends setting aside any extra money they might have in savings. That may take a priority over funding a SEP.

“It’s tough, because it depends on your industry,” Kojonen said. “Don’t make any quick decisions about funding it early.”

“An individual should have three to six months of expenses set aside. For my business, I have at least a year of expenses. The pandemic scared everyone into having bigger reserves,” added Kojonen.

What are investment options for SEP IRAs?

SEP IRA funds can be invested in stocks, bonds, ETFs, mutual funds, and other securities.

What are the tax benefits of a SEP?

Ponce notes that there are tax benefits for an employer funding a SEP.

“The tax benefits to the employer are tax-deduction and tax-deferral benefits for the self-employed individual personally,” said Ponce.

Greg Wells is vice president of EP Wealth Advisors. He advocates for SEPs because contributions can be made as often as the account holder wants.

“SEPs are great because they can be opened and funded after the year ends, all the way up until the extension if the person files for an extension,” said Wells.

“It’s also a great tax planning technique as one can wait until their year ends and see where the numbers finish, then decide what to contribute to a SEP,” added Wells.

What are the tax rules of having a SEP IRA?

If a small business owner deducts contributions today, they pay income taxes when they withdraw the money. An employer gets tax deductions for contributions to employees’ accounts. The IRS provides more detailed information about the tax implications of a SEP.

What are the downsides of a SEP IRA?

Even though a SEP IRA may be beneficial to self-employed people, there are setbacks. A SEP IRA doesn’t have a Roth version. That means that a self-employed person can’t choose to currently pay taxes on contributions. Later, they can take tax-free distributions in retirement, like in a Roth IRA.

Like traditional IRAs, there can’t be tax- free withdrawals before self-employed people turn 59. Account holders also have to take required minimum distributions after they turn 72. In addition, there is no way to make up SEP contributions if an account holder starts an account if they’re 50 and over.

Can a SEP help small business owners?

Funding a SEP could be best for small businesses. Only employers can fund a SEP for their workers. Employees can’t fund one on their own.

Niko Finnigan, a partner at Delta Wealth Advisors, believes that the SEP IRA can be beneficial for small business owners.

“The SEP IRA is powerful for closely held businesses because it requires the employer to contribute the same percentage of income for each employee,” said Finnigan.

If an employer wants to add more workers, a SEP may not be best, according to Finnigan.

“The employer would be required to contribute to every employee’s SEP IRA, which can quickly become costly,” said Finnigan.

Paul Ferrigno is a certified financial planner at Ferrigno Financial. He advocates his small business clients to open SEPs.

“I advise my clients to open these plans when they have a small family business or limited number of employees that the employer feels the obligation to help save for retirement,” said Ferrigno.

How do SEPs impact employees?

When a business owner contributes a certain percentage to a SEP, they have to contribute the same amount to an employee’s account. For example, if an employer contributes 5% of their income to a SEP, they have to contribute the same amount for each employee.

Before adding employees to a SEP, they must meet certain criteria. An employee must be 21 and must have earned $600. Ponce also noted that employers can set certain boundaries for SEP eligibility.

“Employers can be less restrictive on the eligibility, but may not set requirements to be more restrictive,” said Ponce.

How do SEPs help employees?

According to Repko, employers can decide how much to contribute to employees’ SEPs.

“The employer contributions are discretionary from year to year, meaning there is no requirement for the company to make contributions each year. The business can choose when to make contributions, which can be a valuable planning tool so the contributions can coincide with profitable years,” said Repko.

While there are expenses with covering employees, those expenses are usually tax-deductible. However, financial expert Wayne Bland notes that if an employee leaves the company, they can take their IRA contributions with them.

“If they quit and go to work for a competitor down the street they take all of those contributions with them,” said Bland.

Even though SEP IRA’s can be expensive for small business owners, employees will stay with a company if there are benefits. Bland notes that the SEP IRA benefits for employers can outweigh the costs.

“Most investment options are available in whatever type of retirement plan you open. But employees love to know that the company is contributing 10, 15 or 25 percent above the gross pay to their retirement account. It reduces the need for the employee to save 10 percent of their gross pay,” said Bland.

Can a SEP IRA save a business money?

A SEP IRA can help businesses save money by helping employees. Ryan Repko, a certified financial planner at Ruedi Wealth Management, said it would help employees.

“The business could save money by establishing a SEP IRA because it would not have to make contributions on behalf of employees who haven’t worked for the company for at least three years,” Repko says.

However, Repko thinks the SEP IRA could be costly for business owners.

“The disadvantage is that any employee who has worked for the company for three years and is at least 21 years of age is going to be covered by the plan, even if they only work part-time,” said Repko.

What are the SEP withdrawal requirements?

If an employer wants to make an early SEP withdrawal, there are penalties. A business owner has to pay income tax on the withdrawn amount. In addition, an employer has to pay a 10% early withdrawal. However, there are exceptions.

If an account holder has certain medical expenses while unemployed, has a disability, or other extenuating circumstances, there may be withdrawal penalty waivers.

Which SEP IRAs are best for self-employed people?

While there are many IRA’s to choose from, these five brokerage accounts are considered the best SEPs.

1. Vanguard

Vanguard is considered one of the best SEP IRA’s for self-employed people. With $4.5 trillion in assets, the company is one of the most valuable retirement management accounts. Finance expert Andrew Chen says Vanguard’s IRA funds are affordable for self-employed people.

“Vanguard funds are best-in-class when it comes to passive index investing for low cost. What makes them stand out is their rock-bottom cost and passive management that allows investors to achieve market-matching returns for zero effort and near-zero cost,” said Chen.

Chen adds that the Vanguard retirement funds have several securities.

Vanguard helps manage risk for SEP IRAs — Vanguard SEP IRAs help account holders manage risk

“The underlying funds that make up the Vanguard target retirement funds hold U.S. stocks, international stocks, U.S. bonds and international bonds. Buy one of these funds and you’re done throughout your investment horizon,” said Chen.

Don Cody is president and CEO of Global Macro Asset Management. He said that because Vanguard is such a large retirement fund corporation, many money managers fund their IRAs with Vanguard.

“Vanguard, because of their size, attracts some of the best active money managers, and their passive or indexed investments track their underlying benchmarks exceptionally accurately,” said Cody.

2. Betterment

In addition to Vanguard, Betterment offers hands-off robo-advising SEP IRA accounts. The company has $13.5 billion in assets. Betterment’s 401k offering, Advised 401K, is a robo-advising retirement plan.

Betterment’s senior communications manager Danielle Shechtman says the company “has enhanced its policies and procedures and made personnel and other changes to ensure compliance with all applicable regulations.”

Dan Herron is a financial planner with Elemental Wealth Advisors. He said the automatic SEP IRA choices make Betterment a good choice for self-employed people.

“Plus, the technology is so good [and] the onboarding process is so easy, that there [aren’t many] administrative items for the advisor to do. The better these platforms get, the harder it will be for advisors to justify tacking on their fee,” said Herron.

“To me, Betterment stands out from other robo-advisers,” says Kate Dore, the author of the Nashville-based money blog Cashville Skyline. “I like the goals-based investment tools, reasonable annual fee (.25 percent), no minimums, and automatic tax-loss harvesting and rebalancing.”

Soon after opening my account, I started doing an automatic transfer of $100 per month, which I eventually increased over time,” she said. “Four years later, and after substantial market volatility due to COVID-19, I’m still happy to report that the money in my brokerage account has far outperformed where it would be if it were sitting in a traditional savings account.”

Betterment SEP IRA best for hands-off approach to retirement savings

If a self-employed person wants a SEP IRA, Betterment can be a good option. Aaron Schumm is CEO of Vestwell, a fintech company. He says that Betterment’s advising program helps business owners plan for retirement.

“Traditional business-to-consumer fintech and robo-platform providers often pay lip service, saying they will work with advisors, yet in not-so-subtle ways the intent is to take the advisors’ clients,” Schumm says. “It’s important to always understand the core DNA of any partner firm and where their true focus and intent lay,” said Schumm.

Robo-Advisors — Betterment is a robo-advisor for SEP IRAs

Betterment for Advisors general manager Jon Mauney thinks Betterment’s program will help young entrepreneurs.

“Folks ready to get out there and hustle, we’re counting on this being a thing that they’re interested in,” said Mauney.

Theodore van Gerven is founder of Modern Wealth Builders. He advocates self-employed people to use a Betterment IRA that’s easy to set up.

“At the end of the day, for an advisor like me who doesn’t charge on the 401(k) itself, I’d want a platform that is easy to set up and doesn’t require much hands-on from me,” said van Gerven.

3. Fidelity

With Fidelity SEP IRAs, many people are increasing their contributions to these accounts. With this current economic uncertainty, many people are turning to saving in Fidelity IRAs. Katie Taylor is the vice president of thought leadership at Fidelity. She noted that the increased savings rate in SEP IRA’s is encouraging.

“Many working Americans rely on 401(k) accounts to fund their retirement. The fact that people across all age groups are saving at higher levels than what we’ve seen in the past is really encouraging,” said Taylor.

Taylor advises people to start saving in SEP IRAs as soon as possible.

“Start saving as soon as you start your career and take advantage of any matching contributions within a 401(k). Saving early and increasing contributions over time are key,” said Taylor.

Increase in 401k saving helps Fidelity SEP IRAs

With the increase in economic volatility, many employers are funding Fidelity SEP IRAs. Kevin Barry is the president of Workplace Investing at Fidelity Investments. He notes that many business owners are funding IRAs now for their employees.

“While the stock market’s performance in Q2 helped drive workplace retirement account balances higher, employer contributions also played a key role. Nearly 90% of employers continued to offer matching contributions to their employees over the last quarter, despite the unsteady business landscape,” said Barry.

Barry also noted that there was an increase in Fidelity SEP IRA investments during the nationwide quarantine.

“The company match can help drive participation in a workplace savings plan while providing employees with a savings goal to aim for, so we are encouraged to see that the majority of our clients continued to provide this important retirement savings benefit,” said Barry.

“In addition, we saw a growing number of investors make contributions to their IRA, with year-to-date contributions to IRAs increasing more than 20% over the same period last year,” continued Barry.

We generated $2.4 billion in total revenue in the second quarter with the title segment producing $2.2 billion, F&G producing $124 million, and the corporate segment generating $72 million.

Fidelity Q2 2020 earnings rise as more people save in SEP IRAs

As a result of increased SEP IRA contributions, Fidelity had a profitable Q2 2020. Chief financial officer Anthony J. Park spoke about the results.

“Second-quarter net earnings were $309 million, which include net realized gains of $162 million versus net realized gains of $41 million in the second quarter of 2019, primarily due to mark-to-market accounting treatment of equity and preferred stock securities, whether those securities were disposed of in the quarter or continued to be held in our investment portfolio. Excluding net realized gains, our total revenue was $2.3 billion as compared with $2.1 billion in the second quarter of 2019,” said Park.

Fidelity says saving for SEP IRA can make big difference later

Meghan Murphy is vice-president of Fidelity Investments. She notes that small savings in SEP IRAs can make a big difference in an account holder’s finances.

“Those small jumps by just 1% or 2% over a 20-year or 30-year career can really make a big difference in the end. The longer that money is in the plan and has time to grow, the better off you are,” said Murphy.

Murphy and Fidelity also advise account holders not to expect to earn too much on SEP IRAs right away.

“Few people get there overnight. Think of planning for retirement as a journey. The key is to save as much as you can now and try to increase savings over time,” wrote Fidelity.

4. E-Trade

In addition to Fidelity, E-Trade offers SEP IRAs. However, because of the current economic volatility, some investors are taking out their SEP IRA funds. Mike Loewengart is the managing Director of Investment Strategy at E-Trade Financial. He noted that young people are especially depleting their IRA funds.

“Young investors have a barrage of financial obligations—whether it’s paying down student debt or a mortgage, saving for retirement, or helping care for their parents,” said Loewengart.

“The recent health crisis has only magnified these issues, forcing some Millennial and Gen Z investors to tap their retirement funds for relief. It’s important for young investors to remember that they have a significant benefit their older counterparts do not—time. Making consistent contributions today, no matter how small, can make an impact over the long term,” added Loewengart.

E-trade SEP IRAs can be way to save money

Despite the “corona-conomy” brought on by the economic slowdown, E-Trade advocates continuing to contribute to their SEP IRAs.

“Many Americans are facing economic hardships amid the coronavirus pandemic and making big financial decisions in times of uncertainty can be difficult. But even though you can do it, doesn’t mean you should.”

“Make sure you’ve exhausted all the ways you can cut back on your expenses, such as refinancing to take advantage of the lower interest rate environment. Though it may seem daunting right now, those cutbacks could add up to help make important payments,” added Loewengart.

5. Ally

Ally Bank is an online bank that offers SEP IRAs to customers. The bank’s CEO Jeffrey Brown spoke about the bank’s early digital-only banking strategy.

“For us, we got a jumpstart maybe on the competition 10 years ago to really build out a digital-only strategy. There have certainly been opportunities and small brick-and-mortar deals that have come in front of Ally, and we’ve really said that doesn’t make sense for our strategy. Our strategy really should continue to be a leader in digital banking,” said Brown.

With low-trading commissions and no account minimums, Ally’s SEP IRA’s are an attractive option for investors. During this volatile time, Ally also is offering assistance to their customers.

How to Invest — Ally helps people invest in SEP IRAs

“At Ally, we recognize there has never been a more critical time to deliver on our promise to ‘do it right’, and we are committed to supporting the people we serve safely and confidently through this crisis,” said Ally CEO Brown.

“We are taking multiple steps to support our customers, communities and all stakeholders to bolster peace of mind and help safeguard their long-term financial well-being. We’ll leverage our strong market position and consumer lending capabilities as we work through the crisis and continue to prioritize long-term value. When we all do our part, we help create stronger and more resilient communities that benefit us all,” added Brown.

6. Ellevest

Ellevest offers SEP IRAs to investors, especially to female investors. Ellevest’s robo-advising format is easy to use. The investment company CEO Sallie Krawcheck thinks it’s critical to have women open SEP IRAs because more women are becoming entrepreneurs.

“If we’re[women] not investing, we’re doing most of the hard work around money (you know, going to work every day, turning in that amazing design, landing the difficult-to-close client, beating our sales projections)….but we’re only getting about half the reward. We’re depriving ourselves of the ability to take on more risks in our career, to ‘play loose,’ to have more fun in what we do, to do more in our careers, if we don’t have a financial cushion built up,” wrote Krawcheck on Ellevest’s blog.

Krawcheck also wants Ellevest to inspire female investors to save more of their funds in SEP IRAs.

“[Women] tend to leave more than 70% of our wealth in cash as opposed to investing it. For the typical professional woman, that can cost her hundreds of thousands — for some women, millions — of dollars over the course of their lives,” said Krawcheck.

Krawcheck also thinks it’s key for young investors to start saving in SEP IRA’s as soon as possible to accumulate wealth.

“A dollar invested in your 20s is worth more than a dollar invested in your 30s is worth more than a dollar invested in your 40s is worth much more than in your 50s, 60s or 70s,” said Krawcheck.

Ellevest’s IRA is another option for investors that want to save for retirement.

SEP IRA’s can be affordable option for business owners

While saving for retirement can be daunting, there are options for the self-employed. TradingSim can help self-employed people like day traders practice trading stocks that are available in the best simplified employment pension IRAs. These accounts can help investors have a stable retirement.

During this COVID-19 pandemic, many small businesses suffered. The pandemic especially hit pure play businesses hard. Many small business owners lost customers and much-needed money. The nationwide shutdown caused businesses to shut their doors for months. However, there are lifelines for small businesses during this bear market. Small business owners can receive help from government loans.

This TradingSim article will help small business owners find information about how to apply for loans. These small business loans can help them navigate this crisis. In this article, I will also present the challenges and success stories of the loans. These stories can help small business owners have the information to save their businesses.

How have small businesses been impacted by COVID-19?

The coronavirus quarantines devastated many small businesses. Many shops closed because of the economic slowdown. Deborah Weinswig is CEO and founder of retail advisory and research firm Coresight Research. She believes that 15,000 small businesses will close if the crisis continues.

“I think we will see an increase in the number of Chapter 7 [bankruptcy filings]. Nobody knows how to deal with this,” said Weinswig.

Holly Wade is the director of research and policy analysis for the National Federation of Independent Business. During the coronavirus, she notes that it’s hard for small businesses to maintain cash flow during this economic crisis.

“Cash flow, even in a good economy is often a struggle for small businesses. But, now it has turned into one of the most, if not the most, important obstacle that they face,” said Wade.

In this uncertain economy, Wade also notes that small business owners are going through different situations that depend on their industries.

“Small business owners are having to navigate a very, very uncertain future right now and it’s not a one size fits all impact on small firms. It depends on the industry, where they’re located, what the degree of the impact is on them,” said Wade.

Minority-owned businesses encouraged to get small business loans

Small Business Loan

Over the past four months, the coronavirus hurt small businesses. However, COVID-19 closures decimated minority-owned businesses. Because of that, the Small Business Association(SBA) encourages business owners of color to apply for the loans.

A recent survey of 500 African-American and Latinx business owners applied for PPP funds revealed a racial disparity. In this survey, the organization found that only 3 out of 10 business owners received the full fund amount.

Banks shut out minority small business owners

Many banks disburse small business loans to companies. When banks disburse funds, few minority business owners receive funding through banking institutions. In the survey from the Association for Enterprise Opportunity , it found that only 6% of minority-owned businesses receive bank funds.

Karl Franz Williams is a Black business owner in Harlem. In his experience as a small business owner, he notes that Black and Latinx entrepreneurs face additional hurdles when they apply for loans.

“There are issues for Black and brown entrepreneurs that were there before. They are considered less bankable with equal credit scores and resumes, that is all part of the problem,” said Williams.

Minority small businesses hurt by lack of clientele

Many Black-owned businesses face challenges for many reasons. However, a key reason they struggle is that their customers don’t have as much money to spend since March. Since the government shutdown, Black unemployment is high at 15%. Belinda Archibong is the associate professor at economics at Barnard College. She notes that the high unemployment rate of African-Americans hurt minority small businesses.

“The consumption and spending power of black communities was most highly hit because of high unemployment. It’s a big challenge in terms of thinking of how we will address these issues to ensure that the racial wealth gap doesn’t worsen,” said Archibong.

Connie Evans is the Association for Enterprise Opportunity’s president and chief executive. In her business expertise, she noted that local minority small businesses must receive loans to survive.

“These local businesses in the community, just because they don’t have a strong balance sheet like a large corporation doesn’t mean they are high risk. They are essential in the community,” said Evans.

How to apply for the Paycheck Protection Program

Paycheck Protection Program

The Paycheck Protection Program(PPP) is one program that can help small business owners during the coronavirus. The program is part of the CARES (Coronavirus Aid, Relief, and Economic Security) Act. Small business owners can apply for the loan through the Small Business Administration website. In the PPP program, loans pay off outstanding business debts . In addition, companies use the funds for other business needs.

“These loans may be used to pay debts, payroll, accounts payable and other bills that can’t be paid because of the disaster’s impact that are not already covered by a Paycheck Protection Program loan,” said the Small Business Administration.

The low-interest loans have a rate of 1%. The businesses don’t have to pay fees to receive the loans. The small businesses also don’t have to put up collateral to receive funds.

The loans have a maturity of two years if the government gives the loans before June 5. If the small businesses received loans after June 5, they must be paid within five years.

Small business owners can apply through their banks or credit union. Because the coronavirus has disproportionately impacted minority-owned businesses, they are encouraged to apply for loans. The deadline to apply is August 8.

Who qualifies for the Paycheck Protection Program loan?

Small businesses with less than 500 employees qualify for the PPP loans. If small businesses have more than 500 workers, they must be a non-profit or a veterans’ group. Native American tribal businesses also qualify for the loans.

Some companies have lost value because they don’t have a successful trading strategy. In that case, they can qualify for the loans. Also, independent contractors and self-employed people like day traders can apply for PPP loans as well.

How does the Small Business Association forgive PPP loans?

Small business owners can apply for loan forgiveness loans through the Small Business Association website. Through this program, the government forgives PPP loans when businesses use funds to meet employees’ payrolls. The Paycheck Protection Program loan payments defer for six months.

Treasury Secretary Steve Mnuchin also wants Congress to forgive small business loans. During testimony before Congress, Mnuchin said that the government should act to forgive more loans.

“I know one of the things we’ll talk about is: Should we just have forgiveness for all the small loans? That’s something we should consider. We should obviously make sure there’s some fraud protection, ” said Mnuchin.

How do small business loans affect employees?

The government forgives small business loans if the companies retain their employees for full-time employment. Small businesses have to use 60% of the funds towards payroll costs, including health care. The Small Business Administration cuts the loan amount if the company reduces its workforce.

If the company cuts staff, the government cuts the loan payment as well. If a company lays off and rehires staff, the disbursement won’t be affected. When small business owners have more questions, they can consult a complete list of frequently asked questions and answers are on the SBA website.

Economic Impact Disaster loans can help small businesses

In addition to the Paycheck Protection Program loans, the Economic Impact Disaster Loans (EIDL) are also available. The Small Business Administration gives loans to businesses after disasters strike. Even though the $20 billion advance funds have currently run out, small businesses can still apply for the loans here until December 31.

The previous advance loans provided $1,000 per employee of a small business. Independent contractors were also eligible to receive $1,000. The greatest amount that small businesses could receive through EIDL was $10,000.

The small business loans help small company owners and freelancers. In a statement, the Small Business Administration explained the purpose of the program.

“Following the enactment of COVID-19 emergency legislation, the SBA provided nearly six million small businesses employing 30.5 million people with $20 billion through the unprecedented EIDL Advance program,” said the Small Business Administration.

“This program, built from the ground up in less than two weeks, assisted millions of small businesses, including non-profit organizations, sole proprietors and independent contractors, from a wide array of industries and business sectors,” said the Small Business Administration.

What are the requirements for the EIDL?

To qualify for the EIDL, small businesses must pass a credit check. The interest rate is 3.75% for small businesses and 2.75% for non-profits. The loans can take 30 years to repay. The loan repayment is delayed for a year. However, interest accrues during the year-long payment delay.

Loans over $25,000 may require small business owners to put up collateral. If loans total over $200,000, a personal guarantee may be required for the loan.

How are EIDL’s used?

EIDL’s maintain payroll and health care for small business employees. With the loans, businesses pay off debt and increased supply costs. In addition, EIDL’s also have to used to pay rent and other expenditures.

Can EIDLs restart to help small businesses?

The EIDL reduced its advances from $2 million to $150,000. As a result, many businesses haven’t received funds.

Politicians want to re-open and expand the EIDL. New York senator Chuck Schumer leads a group of senators in this battle. They want to re-instate the $2 million that can be granted to small businesses. Recently, Schumer and the other senators alleged that the Small Business Administration reduced the funds without warning them.

“The SBA has no excuse for its stubborn refusal to communicate transparently with the public or with Congress, and for its complete disregard for Congressional intent in the delivery of this critical assistance,” said the senators.

The senators also allege that the SBA is “completely disregarding current law and Congress’ clear intent that, in accordance with the CARES Act, small businesses be allowed to borrow up to $2 million to respond to the COVID-19 pandemic”.

Community Development Financial Institutions get extra funding for small business loans

The Small Business Administration has responded to criticism about bypassing small businesses by giving more grants. In response, The SBA recently gave an additional $10 billion in Paycheck Protection Loans to Community Development Financial Institutions (CDFI’s).

William Michael Cunningham, an economist and banking expert, praises the additional funding for the CDFI’s. However, he saw greater funding as evidence that small businesses are in more trouble than previously believed.

He noted that “the downside is that the speed with which SBA has come up with this additional funding may indicate that the economic situation is worse than we thought.”

CDFI’s help fund underserved small businesses

In many neighborhoods, CDFI’s are banking institutions that are very helpful to small businesses. With CDFIs, they’re institutions that specialize in providing loans to low-income and minority communities.

John Holdsclaw is board chair of the Coalition of Community Development Financial Institutions. Because of his experience with small business loans, he noted the importance of the CDFI’s to provide small business loans.

“These institutions provide equity in these black and brown, low-income communities. They were created to be able to provide fairly priced loans and a place to build assets. It’s not about profit, it’s about creating access,” Holdsclaw.

Janie Barrera, CEO of CDFI LiftFund, notes that the financial institutions help small businesses and do much more.

“It’s a ripple effect, small-business owners generate revenue for the state, employ others in their community who utilize that money to put food on their table,” said Barrera.

CDFI’s offer PPP small business loans

In order to help small businesses, the SBA is providing $10 billion to CDFI’s to help small businesses. In a statement, SBA administrator Jovita Carranza explained the purpose of the expanded loans.

“The forgivable loan program, PPP, is dedicated to providing emergency capital to sustain our nation’s small businesses, the drivers of our economy, and retain their employees,” stated SBA Administrator Jovita Carranza.

“CDFIs provide critically important capital and technical assistance to small businesses from rural, minority, and other underserved communities, especially during this economically challenging time.”

Through CDFI’s, small business owners can get more funding for their companies. As a result of the SBA help, the CDFI’s use the extra funding to loan small businesses more money. Kevin Cohee is CEO of the OneUnited CDFI. Through that community financial development institution, OneUnited disbursed Paycheck Protection Program loans to gig workers.

“The first PPP loan we processed was an Uber driver. The reason we did that was to make the point that it’s the smallest among us – the one you could lose money on – that need the most help,” said Cohee.

If small business owners want more information about small business loans, they can find their local CDFI here.

Lowe’s offers small business grants

In addition to community development financial institutions, corporations are offering small business loans as well. To help many small businesss, home improvement chain Lowe’s is giving $25 million in grants to rural small business owners.

In addition to those funds, the corporation will also offer $30 million in grants to minority-owned businesses. As a result, Lowe’s is partnering with the Local Initiatives Support Corporation to disburse the grants.

In a a statement, Lowe’s Chief Brand and Marketing Officer Marisa Thalberg spoke about the opportunities offered to small businesses.

Lowe’s is offering small business grants during COVID-19

“As we started recognizing where the [pandemic] impact was being felt, we just felt that there wasn’t enough conversation around the impact in rural America,” said Thalberg.

During the COVID-19 pandemic, Andarrio Johnson is a business owner Lowe’s helped with the grant. The caterer received $20,000 from the company to keep his business afloat. He’s grateful to Lowe’s for the grant.

“It meant a lot I couldn’t believe these companies are actually looking at minority small businesses – I couldn’t even believe it, it’s a dream come true,” said Johnson.

Because Lowe’s assisted him, Johnson wants to take some of his grant money to give back to the community.

“I just felt like it’s a way to give back and if you give you receive and look- example right now Lowe’s just gave me something. It feels great, it feels great I can’t believe it sometimes,” Andarrio Johnson said.

If entrepreneurs want more information, small business owners can apply for the grants here.

Verizon gives grants to small businesses

In addition to Lowe’s, Verizon is also helping small business owners with grants. In order to help businesses, the company’s Small Business Recovery Fund is giving $7 million in grants to small businesses. Rose Stuckey Kirk is Chief Corporate Social Responsibility Officer of Verizon. In a statement, she explained Verizon’s initiative to help small businesses.

Verizon is helping companies that didn’t receive small business loans

“Verizon recognizes how valuable small businesses are. The economic stability of our communities is based on their success. It’s critical that we lean in and support these businesses. So they can continue to sustain themselves during this unprecedented time of need,” said Kirk.

If entrepreneurs want to find out if they’re eligible for the Verizon grants, they can apply here.

Beyonce offers small business assistance

While many celebrities grab attention for themselves, many are giving back to small businesses. Beyonce is one celebrity that gave back to small businesses. Recently, the superstar partnered with the NAACP to give $10,000 in grants to Black-owned small businesses.

“Over the last couple of months, the pandemic and outpours for justice throughout the Black community and across the country has been felt in every imaginable area of our lives, including in how our local businesses continue to operate,” noted the NAACP website.

“The challenges of Black business owners navigating in the climate cannot be understated, as the effects of uprisings across the nation have led to many businesses being placed in dire straits due to damages and other small business needs,” added the civil rights organization.

While the loan’s deadline has passed, the NAACP still has a list of state resources for small businesses here.

Magic Johnson offers small business grants

NBA legend and successful entrepreneur Magic Johnson is stepping in to help small businesses that were left out of the Paycheck Protection Program loans. As a business owner himself, he knows the challenges that small businesses currently face in the COVID-19 era.

“We have to remember that these businesses have been in urban communities for a long time. They’ve been doing great things, and they probably didn’t have a relationship with the banks when the stimulus package went out. So now, we’re able to say, ‘Hey, you can have a relationship with us,’” said Johnson.

In his partnership with MBE Capital, he is offering $100 million in loans to minority-owned businesses. As a business owner, he knows how pivotal small businesses are to a community.

“This[the loans] will allow them to keep their employees and keep their doors open”, said Johnson.

If small business owners want to apply for PPP loans through MBE Capital, they can apply here.

Doonie Fund helps female-owned small businesses

The Doonie Fund is an organization that helps female-owned businesses. Since April 2020, founder Kathryn Dooney has given thousands of dollars to women-owned small businesses. Finney explained how the fund has helped women entrepreneurs.

“We’ve seen entrepreneurs who were able to, with the Doonie Fund micro investment, pivot their businesses to adapt to these challenging times. Some used it to gain new customers and increase revenue, and others simply needed it to buy groceries or pay for utility bills to sustain their livelihood, so that they can focus on pivoting their businesses during this time,” said Finney.

For women business owners who are interested in applying, they can visit the Dooney Fund site.

Small banks help give small business loans

Some businesses that benefitted from the PPP loans include Dallas-based fitness equipment company CommFit. CEO Seth Gordon noted that his local bank, Live Oak, was helpful in disbursing the funds to his business.

“As the rules of engagement changed, Live Oak was extremely helpful. We were really lucky to work with a great bank. I do have friends that are lost right now trying to figure out how to get money,” said Gordon.

Gordon noted that the Paycheck Protection Program loans will help keep his business afloat.

“It’s rare that you get to take advantage of government subsidies, so we feel very fortunate. You hate that it’s under these circumstances, but this is extremely helpful and relieves the short-term pressure. Now, if this becomes a six-month or 12-month or 18-month issue, this money will only last so long,” said Gordon.

Jesse Safir is the owner of ABG Print. When his business needed funding, he noted that his small bank, Live Oak, helped process his PPP loan.

“The big banks, all their call centers are down, they can’t process the volume right now. Live Oak knows me, knows my loan, there’s less ambiguity. And I’m already a borrower, and that’s so important, because think about the incentive that puts on them,” said Safir.

Many small banks assisted small businesses when they needed help. While there were success stories, the Paycheck Protection Program loans have encountered problems as well.

Small business loan delays hurt entrepreneurs

While some businesses have been helped, some businesses are still struggling to receive funds. The $670 billion PPP loans promised to big businesses ran out of money within days. Many small business owners are scrambling for funds to help their businesses the coronavirus-caused shutdowns.

Jaja Chen is a business owner that applied for PPP loans in March. She’s the owner of the Waco Cha bubble tea shop in Waco, Texas. Even though her loan was approved in June, she still hasn’t received her funds.

PPP loan system leads to small business loan delays

In response, SBA representative Sean Smith, wrote in an email to Chen that the loan system had a temporary error.

“The system had a temporary glitch that affected initial disbursements. There is a chance that some people got overlooked for the initial disbursement,” wrote Smith.

The SBA loan processing system, E-TRAN, was overwhelmed by the thousands of PPP applications. A spokesperson for the SBA explained the technical problem.

“The pacing mechanism prevents any one lender from submitting thousands of loans an hour into the E-TRAN system. If a lender goes above the pacing limit they will get timed out,” said the spokesman.

Large retailer J.C. Penney and small businesses suffered during COVID-19

Chen noted that the delays in Paycheck Protection Program loans have delayed the re-opening of her store.

“We can’t just continue waiting. We are very thankful that despite the federal issues we have been able to actually continue to grow our business and recoup some of our losses through creating new ideas and concepts,” said Chen.

Another small business owner who was shut out of PPP loans was David Lee. He’s the owner of Blue Moon Construction in Tampa, Florida.

The decline of the Dow Jones caused a greater need for small business loans

Lee is frustrated with the delayed and reduced funding he and his employees received from the EIDL program.

“We feel shortchanged. This was our only access to the stimulus,” said Lee.

Lee feels that the PPP disbursement was erratic and feels betrayed by the Small Business Administration.

“Now they’re pulling the rug out from under us. It feels like the government is overlooking America’s smallest companies,” said Lee.

Kanye West receives PPP loans, while small businesses shut out

According to reports, billionaire rapper and presidential candidate Kanye West received between $2-$5 million for his Yeezy company through PPP loans. Other famous organizations like the Los Angeles Lakers have received funding. The team received funds that didn’t help small businesses. The NBA team returned the $4 million the organization received.

“Once we found out the funds from the program had been depleted, we repaid the loan so that financial support would be directed to those most in need,” said the Lakers in a statement.

PPP loan program flaws exposed

In addition to the funds going to wealthy organizations, there are other flaws in the Paycheck Protection Program. Many businesses have to spend 70% of the loans on employee payroll.

Michael Minnis is an accounting professor at the University of Chicago Booth School of Business. He said the PPP loans focus too much on employee payroll and ignores other needs, like utilities and rent.

“The design was to help companies fund their payroll. One can step back and say, ‘Gosh, is that the design we wanted to have?’” said Minnis.

Minnis also noted that not all small businesses can disburse the loans equally because there are different business sizes.

“It wasn’t called the small business protection program or the microbusiness protection program. Companies in the 100- to 500-employee range have more payroll dollars than companies in the under-100-employees range. That’s just math,” added Minnis.

The government vows to clear small business loan roadblocks

In response to the criticism, Small Business Administration Associate Administrator James Rivera acknowledged that the government agency made mistakes.

“We didn’t communicate ahead of time, and in hindsight we probably should have,” said Rivera.

The Small Business Administration vowed to take more action to streamline the small business loan application process.

“The [SBA] is trying to go through the apps to see that everyone that is due an initial disbursement will get one,” said the SBA in a statement.

“The SBA is strongly committed to working around the clock”, added the Small Business Administration.

The SBA notes that it’s “providing dedicated emergency assistance to the small businesses and non-profits that are facing economic disruption due to the COVID-19 impact.”

Government vows to streamline PPP loan forgiveness application process

For entrepreneurs that are fortunate enough to secure PPP loans, there is still a complicated process to fill out loan forgiveness forms.

Erik Asgeirsson, president and CEO of CPA.com, spoke about how to simplify the PPP loan forgiveness process.

“From the beginning [of the PPP], we’ve been issuing documents with what our recommendations were and our suggestions on how loan forgiveness works. And now we’ve put it all into one application process,” said Asgeirsson.

“This tool hopefully will also encourage people with the next phase of business relief to make sure that complexity in the process is not a reason to not get the assistance they need,” Asgeirsson says.

If small business owners want to apply for the loan forgiveness program streamlined process, they can apply here.

Treasury Secretary vows to make changes

In the wake of the outrage about the PPP loan disbursements, there may be changes. Treasury Secretary Steve Mnuchin promised to streamline the process. In testimony before Congress, he talked about possible PPP loan forgiveness. He also vowed not to show preferences to big businesses that don’t need the loans as much as small businesses. Mnuchin wants to act to prevent widespread fraud in the Paycheck Protection Program.

” I know one of the things we’ll talk about is: Should we just have forgiveness for all the small loans?” That’s something we should consider. We should obviously make sure there’s some fraud protection,” said Mnuchin.

“This time we need to have a revenue test and making sure money is going to businesses that have significant revenue declines,” added Mnuchin.

Local governments step in to help small business owners

In response to the sluggish national government response, many small local governments are helping small businesses. Harris County in Texas has stepped in to disburse $10 million in loans to small companies. The small business loans come from Harris County’s own emergency fund to help small businesses. Harris Country Commissioner Adrian Garcia noted that the county’s loan program was simplified to assist small businesses.

“The federal government is so far removed from the local community that it didn’t think about, and it can’t think about, simplicity,” said Garcia.

“My charge to my staff was to keep it simple. We got to make this easy to apply for and user friendly,” added Garcia.

In the partnership with CFDI LiftFund, the Harris County PPP loans are at $25,000 at 0% interest. Loan payments are deferred for the first three months. The loans are repaid if the businesses remain open after five years.

In addition to Houston’s Harris County providing small business loans, Corpus Christi, Texas city manager Peter Zanoni is taking action as well. He wants to help local small businesses secure funds.

“We wanted to have locals feel comfortable, to have access to a human being, to give small-business owners who may not be sophisticated with some of these federal programs the ability to not feel intimidated to access credit,” said Peter Zanoni, city manager of Corpus Christi.

Other resources for other small business loans

If local businesses need other resources, there are ways they can receive funds. Nav is a company that helps small businesses obtain loans and grants. The company offers small business grants through October. Small business owners become Nav members. After becoming members, entrepreneurs can apply for the $10,000 loans that are disbursed every quarter. The deadline is September 1 for the fall grants.

In addition to that assistance, small business owners can apply for multiple loans and grants online. Small businesses can also try fundraising sites online or try microloans as well. By conducting research and reaching out to fellow entrepreneurs, small business owners can get the resources to help their companies survive.

Restricted stock units (RSUs) are a top perk for employees. Many tech companies that are growth stocks offer this stock-based compensation once an employee joins a company. In many cases, they are an alternative to stock options similar to ETFs.

In this TradingSim article, I will explain what a restricted stock unit is. Throughout this article, I will also explain which stocks can be added to rebalance portfolios and help their trading strategies because they are profitable enough to offer employees the best RSUs.

What are restricted stock units?

When a company hires an employee, at first they may receive the units as part of their compensation. RSUs are grants that are part of stock-based compensation that are equal to the value of a corporation’s common stock. When companies issue the grants, they are based on the value of the company’s stock.

How do RSUs work?

Employers distribute restricted stock units to employees after a vesting period. A vested definition means that an employee will own shares. During a vesting period, a certain amount of time an employee has to work at a company before they receive the shares.

For example, a company can give an employee 2,000 RSUs. If 25% of the RSUs vest each year, after one year, 500 shares will vest. In addition, employees can also receive the shares as cash. Once they vest, an employee can receive sell the shares.

If employees want to donate their RSUs to charity, they can help a good cause– and themselves at tax time. One benefit is that employees can get an itemized deduction that’s equal to the stock’s market value. The second benefit is that employees can avoid capital gains taxes by giving RSU shares to charities.

What are double trigger RSUs?

Double trigger RSUs are another kind of restricted stock unit that employers offer. They are offered by new companies before their IPOs(initial public offerings. Double trigger RSUs are not taxed until they are vested and the companies go public with their IPOs.

Garrett Perez, a CPA, notes that many companies have double trigger restrictive RSUs to protect their workers.

“Most companies who do in fact issue RSUs have this requirement [of double-trigger vesting] as it would be extremely punitive on their employees to have them recognize it as income with essentially no market to sell it in. I’ve never seen a pre-IPO company that does not have the double vesting requirement,” said Perez.

What is a restricted stock unit vested schedule?

Some employers offer RSUs on a graduated vesting schedule. In that case, the units may vest 10% after one year, 20% after two years, and so on.

Vested schedules for restricted stock units vary in three ways. For example, say an employee receives 120 RSU’s in January 2020. In cliff vesting, workers receive 100% of their benefits after a certain amount of time. In a three-year vesting schedule, an employee receives all their shares in January 2023.

With a graded vesting schedule, a company gives fewer shares of its stock at an annual rate. If there’s a three-year graded vesting schedule, an employee may receive 30 shares of a stock every January until 2023.

In a cliff/graded vesting hybrid, there is a mixture of the two vesting schedules. A company can issue 40 shares of its stock in January 2020. Then, they may issue 3-4 shares a month until the vesting period is over.

How do RSUs differ from stock options?

Similar to stocks vs. ETFs, RSUs are similar to stock options, but have key differences. In most instances, restricted stock units

don’t expire. They convert into shares after a vesting period. Because of the conversion, they don’t ever have an expiration date.
have the same fair market value during the vesting period.
complete a vesting schedule usually after five years.
are taxed as regular income when they’re vested.

In contrast, stock options

expire 10 years after employees receive them.
tie into the stock price. If a stock price drops below the grant price, the option’s value plummets. When a stock price rises, the stock option’s value jumps as well.
aren’t vested.
are taxed at the time the options are exercised.

What are the advantages of restricted stock units?

In a bear market, restricted stock units can be a safer option for employees. Because stock options are tied to a stock price, a diminished stock price can hurt an employee’s stock options. However, employees take RSUs at a stock’s current market value when they’re vested. At the time the units are vested, they could have a higher value to employees.

What are the disadvantages of RSUs?

Because restricted stock units are different from stock options, they may not reap all the benefits. Since most RSUs vest after five years, many employees may leave their jobs before they enjoy the stock perks. If an employee quits, their former employer forfeits the RSU that remain.

Even if employees stay with a corporation for five years, the value of their RSUs may not be the same after the vesting period. If the stock loses value during an economic downturn, the RSUs may lose value when the employee receives the shares.

How are restricted stock units taxed?

In the year they’re vested, RSUs are taxed as income if an employee keeps the units. If an employee sells the units, capital gains taxes will due at the time of the sale. Restricted stock units aren’t tax-free investment expenses. For example, if an employee vested 20,000 shares of a company’s stock at $20, the value of the RSUs will be $200,000. That amount is treated as taxable income by the IRS.

It’s important to have the RSU vested income set aside to pay taxes because tech companies usually may not pay them themselves. The success of tech companies may ironically mean that they don’t make withdrawals for employees.

Corporations usually withhold state, federal, Social Security, and Medicare taxes on RSU’s. The taxes are usually at a flat rate of 22%.

However, because tech companies are often in high tax brackets, a tech company’s workers often have to pay higher taxes on their RSUs. They would often owe more than what employers would set aside to cover taxes.

Special tax election can collect RSU taxes sooner

If an employee wants to take their taxes out before the restricted stock units vest, they can make a special election. The special Section 83(b) election taxes employees before the RSUs vest. The RSUs are taxed as extra compensation.

If employees keep the restricted stock units for more than a year, the RSUs are taxed at a lower rate as capital gains. However, the units are taxed in the year that employees receive them, even if the stock unit declines in value.

What are the RSU tax withholding methods?

There are four main tax withholding methods for restricted stock units.

In a same-day sale, all of the shares sell on the day they’re vested. The money can be used to pay taxes.
With a cash transfer, money is deposited from an employee’s account to pay taxes.
In the sell-to-cover method, an employee receives shares at the end of the vesting period. An employee’s broker can sell the shares to cover tax expenses. Then, a worker can keep the remaining shares.
With a net share settlement, an employee’s company can retain some of the vested RSUs. The shares are equal to the withholding tax amount. After that, the units that are left can be deposited to a brokerage account.

What is the cost basis for restricted stock units?

The cost basis for RSUs is the fair market original value of an employee’s shares on the day that the units vest and they receive the shares. That value will likely never change throughout the vesting period of the restricted stock units. The cost basis usually stays the same. It isn’t adjusted to calculate an employee’s tax calculations unless the unit amount is $0.

All of the corporations below offer generous RSUs to employees. These companies are the top corporations that offer restricted stock units to employees.

1. Amazon

Amazon’s stock soars during COVID-19

During the coronavirus pandemic, Amazon’s (NASDAQ:AMZN) stock soared 68% a year after hitting its rock-bottom low. Financial experts like Wedbush analyst Michael Pachter said the e-commerce boom during quarantine will boost Amazon in the long term.

“E-commerce is likely one of the biggest beneficiaries. E-commerce is likely to see a permanent shift away from offline stores,” said Pachter.

FBN Securities analyst Shebly Seyrafi believes that Amazon stock will continue to rise even if another quarantine happens in the U.S.

“To us[FBN Securities], AMZN[Amazon] is the ultimate ‘stay-at-home stock,'” wrote Seyrafi in a note to clients.

Amazon raises wages, but cuts RSUs for hourly workers

Amazon’s RSUs usually vest after four years. They vest on a 5-15-40-40 schedule. That means that after year 1, the restricted stock units vest 5%. Then they vest 15% the second year. In the last two years, they vest at 40%.

During 2018, Amazon eliminated RSUs for its hourly workers. In exchange for raising the wage of hourly workers to $15, Amazon ended RSUs as part of employee benefits. As noted in a company blog post, Amazon restricted stock units will vest this year, and in 2021. The corporation replaced the RSUs with direct stock. An Amazon spokesperson explained the changes.

“The significant increase in hourly cash wages more than compensates for the phase-out of incentive pay and RSUs,” said the spokesperson.

“We can confirm that all hourly Operations and Customer Service employees will see an increase in their total compensation as a result of this announcement. In addition, because it’s no longer incentive-based, the compensation will be more immediate and predictable,” added the spokesperson.

Amazon RSUs help employees buy homes

For salaried employees that still receive RSUs, the units make it easier to buy pricey homes in the company’s home base of Seattle. Diana Bowar, a loan officer at 1st Security Bank, offers restricted unit stock loans to Amazon employees to buy million-dollar homes. Bowar noted that the employees receiving RSUs are more likely to stay in Seattle.

“There’s a need in our backyard. And we’ve seen that people who are getting RSU income and have contracts with Amazon, the likelihood that they’re going to stay in that job making that kind of income is good,” said Bowar.

In 2019, bank lenders usually need employees to show two years of RSU income before they consider restricted stock units as income. Don Zender is branch manager of Evergreen Home Loans and Veterans Lending. He noticed that Amazon employers couldn’t use their RSUs as a down payment on houses.

“But if you start at Amazon, you can’t do that. The biggest hurdle has always been the first couple years,” said Zender.

Many lenders like Evergreen are now open to providing loans to employees with Amazon RSUs.

“Some lenders are starting to say, well, RSUs are not really a one-time thing,” said Steve Geri, a financial adviser at Denny Park Investments in South Lake Union. “They’re a continuing form of compensation in many industries.”

Amazon is a top stock offering restricted stock unit

2. Uber

Uber stock strong as it moves beyond ridesharing

Uber(NASDAQ:UBER) stock recently rose 3% after recent reports it was purchasing food delivery service Postmates. The acquisition would be a welcome addition to Uber’s own food delivery division, Uber Eats. Canaccord Genuity Maria Ripps wrote a note to clients that suggested that Postmates would help Postmates raise Uber’s stock more.

“Postmates should continue to benefit from restaurant selection and strong positions in key markets. However, as the fourth-largest player in the US market, we also see it as a potential consolidation target,” wrote Ripps in the recent client note.

Uber benefits from being rideshare leader

The ridesharing giant has benefitted from being a rideshare leader. Uber CEO Dara Khosrowshahi noted that the company has an advantage over competitor Lyft because of its global reach and diversified businesses under the Uber umbrella.

“We[Uber] are structurally set up more efficiently and more optimally than anyone else to move to profitability. This environment is perfect for us,” said Khosrowshahi.

Uber established restricted stock units in beginning

When Uber first went public in 2019, it detailed in its IPO filing how it would distribute its RSUs.

Uber is a top tech stock that offers RSUs

“As we transition to become a publicly-traded company, we expect that the mix of service- and performance-based components of our equity compensation will shift,” said Uber.

To help us achieve our objectives of rewarding our executive officers for their experience and performance and motivating them to achieve our long-term strategic goals following this offering, we anticipate that performance-based vesting conditions applicable to RSUs granted to our executive officers will become more prevalent,” added Uber.

Uber employees see downside to RSUs

While Uber’s IPO has been successful, there was an unexpected tax burden to its employees. When the IPO launched, Uber recorded its shares at $45. The company tied the restricted stock unit settlement to its IPO launch in 2019. Uber was optimistic that the stock would rise and give a bigger payoff to employees.

In a letter to employees in May 2019, Uber hoped that the move would “mitigate the risk that the company could be responsible for paying a significantly higher amount in taxes if the stock price increases meaningfully after the IPO.

However, the opposite happened. Uber stock dropped to $23. Because the stock fell, employees have to pay extra taxes on capital losses. If the stock had gone up, Uber and its employees would have had to pay less tax in the long run. Employees at the time noted how the extra tax bill shocked them at the time.

“Word started dripping out to say, ‘Hey, I actually owe quite a bit of money to the government. There was a bit of panic and a lot of anxiety’,” said the former employee.

Uber’s RSU is cautionary tale for employees

While Uber offers generous benefits to employees like RSUs, at first, they weren’t implemented with the best advantages to employees. Barbara Baksa, director of the National Association of Stock Plan Professionals, noted that Uber thought its RSUs would rise as its stock was supposed to grow.

“If you think that you’re going to IPO and the stock price is going to continue to accelerate and in six months that stock is going to be worth a lot more, then it would definitely be to the employees’ advantage to have the tax withholding done at the IPO because it would reduce their tax liability and start their capital gains earlier,” said Baska.

Parkworth Wealth Management principal Bruce Barton said that Uber and other tech companies have untraditional ways to compensate employees. Restricted stock units are part of a new compensation package.

“We’re talking about large private companies that got very large, very fast and had to adopt this nontypical way to compensate employees. They’re still experimenting,” said Barton.

Uber offers generous RSUs, but employees must be aware of the possible tax responsibilities they may have when they receive them.

3. Apple

Apple stock rises during COVID-19

The tech giant’s stock skyrocketed by 46%, during the nationwide shutdown. Credit Suisse analyst Matthew Cabral raised his price target on Apple stock because the company’s App revenue grew 35% over the last few months.

“Despite a slow start, increased screen time amid widespread ‘stay at home’ measures is now translating into a rapid acceleration in App Store revenue,” wrote Cabral in a note to clients.

“We’re[Credit Suisse] encouraged by building App Store momentum, both as evidence of Apple’s ability to increasingly monetize its nearly 1 billion iPhone user base and in support of multiple expansion for the stock as the mix shifts to higher-quality, more recurring revenue,” added Cabral.

Evercore ISI analyst Amit Daryanani also expects Apple stock to rise as customers buy more Apple Watches and other devices.

“We expect wearables and services to sustain double digit growth driven by uptick in [average revenue per user] and better monetization of the install base,” said Daryanani.

Daryanani also expects Apple stock to outperform as the corporation recently announced that it would make its own chips in-house.

“It is encouraging that Apple continues to demonstrate its leading chip design capabilities as in-housing semi design remains key to product margin expansion,” noted Daryanani.

Apple’s restricted stock units expanded to many employees

Apple (NASDAQ:AAPL) has a generous restricted stock unit package for employees. The RSUs were implemented by CEO Tim Cook in 2018.

The tech company revealed that it will offer $2500 in restricted stock units to some employees. Cook explained the RSU compensation in an email.

“To show our support for our team and our confidence in Apple’s future, we’ll be issuing a grant of $2,500 in restricted stock units to all individual contributors and management up to and including Senior Managers worldwide. Both full-time and part-time employees across all aspects of Apple’s business are eligible,” said Cook.

While many employees received many RSUs, Cook benefitted the most from restricted stock units. When he reached the five-year mark of leading Apple, he gained 700,000 RSUs as part of a whopping $100 million bonus compensation deal.

Apple RSUs can be beneficial to part-time and full-time employees if they stay with the company for the long haul.

4. Verizon

Verizon(NYSE:VZ) offers substantial restricted stock units to employees. The phone company’s early adoption of 5G technology and high-paying dividend make the stock attractive to Goldman Sachs analysts. The analysts rate Verizon as a buy.

“We add Buy-rated VZ to the Conviction List as we see the stock offering investors the most attractive combination of total return and risk owing to its stable wireless business, well-covered dividend (4.6% yield) and strong balance sheet,” noted the analysts.

“We believe Verizon’s financial performance will not be materially impacted by a short-term economic shock. This is because a large majority Verizon’s revenues come from selling wireless connectivity services to consumers and businesses in the US,” added Goldman Sachs.

Verizon’s restricted stock units help employees

Verizon’s” Stock Together” program gives RSUs to its employees. Verizon RSUs have a three-year vesting period. On a graded vesting schedule, workers receive one-third of the units on the anniversaries of the date they started with Verizon. In order to receive the RSUs, an employee has to stay through the entire vesting period. If an employee leaves before the vesting period is over, an employee can get the RSUs depending on the reason they left.

In the Verizon RSU program, the amount awarded to employees depends on certain factors. Verizon gives the restricted stock units after dividing the employee’s fixed dollar amount by Verizon’s stock price at the end of the vesting date.

If an employee’s award amount is $3,000 and Verizon’s stock price on the vesting date is $50, the equation is 3,000/50. In that equation, 3,000/50=60. So, a Verizon employee will receive 60 RSUs at the end of each vesting date.

5. Bank of America

Despite the difficulty banks had during the recession, Bank of America (NYSE:BAC) still had a strong Q1 2020. The bank’s CEO, Brian Moynihan, touted the company’s $22.8 billion revenue.

“Our results reflect the strength of our balance sheet, the diversity of our earnings, and the resilience of our teammates to serve clients around the world. Despite increasing our loan loss reserves, we earned $4 billion this quarter’,” said Moynihan.

Bank of America offers large RSU bonuses to employees

During the bull market of 2019, the Bank of America gave 200 to 500 restricted stock units to part-time and full-time employees. The RSUs are for employees that earn between $100,000-$350,000 a year. In this graded vesting period, employees are given the RSUs over four years at the same annual time. Moynihan wrote in a company email about how he wanted the RSUs to lead to employee retention.

“This stock award…will further align the role these teammates play with our continued performance and our shareholders’ objectives,” wrote Moynihan.

Even though the Bank of America is struggling during the global recession, there is still a strong RSU program for employees.

6. Microsoft

Microsoft (NYSE:MSFT) essentially pioneered the restricted stock unit program for workers. Bill Gates spoke about why he thought RSUs were better options for its employees.

“The fact is that the variation in the value of an option is just too great. I can imagine an employee going home at night and considering two wildly different possibilities with his compensation program. Either he can buy six summer homes or no summer homes. Either he can send his kids to college 50 times, or no times,” said Gates.

“The variation is huge; much greater than most employees have an appetite for. And so as soon as they saw that options could go both ways, we proposed an economic equivalent. So what we do now is give shares, not options,” added Gates.

Microsoft stock struggles after closing physical stores

While Microsoft stock rose 45% after physically closing stores, the company’s stock dipped 2% after permanently closing the stores. Despite the slight decline, Microsoft Corporate Vice President David Porter said the closures signal a more cloud-based system to help customers.

“It is a new day for how Microsoft Store team members will serve all customers,” said Porter. “We are energized about the opportunity to innovate in how we engage with all customers, maximize our talent for greatest impact, and most importantly help our valued customers achieve more,” said Porter.

Microsoft restricted stock unit vesting schedule

Despite the drop in Microsoft stock, the Microsoft RSUs are still significant. The restricted stock units are granted every August . After three months, new RSUs are vested five percent over five years. Employees with older grants have them vested 10% every six months in the five year vesting period.

Microsoft’s restricted unit stock system has long been a benefit to its workers.

7. Starbucks

Analysts bullish on Starbucks after stock rise

Starbucks’ growth potential in the next quarter has garnered the attention of financial experts. The investment firm Ensemble Capital, says the coffee company’s stock is a buy. Ensemble Capital is bullish on Starbucks even though many stores were closed during the COVID-19 pandemic. Ensemble Capital believes Starbucks stock can rebound once the economy re-opens this summer.

“Starbucks, which nearly tagged $100 a share over the summer as investors finally realized that the company could return to solid levels of same store sales growth, backed off earlier in the quarter before another strong quarter of same store sales growth in both the US and China reminded investors just how dominant this company actually is,” wrote Ensemble Capital.

RSU’s from Starbucks pay off quickly

Starbucks’ RSU’s are very generous. The coffee giant’s Bean Stock program gives restricted stock units to employees. CEO Howard Schultz increased the benefit in 2016. He touted the plan in a statement.

“Every day, I strive to build the kind of company that my father never had a chance to work for, one that not only cares for its people but gives them opportunities to be their best selves,” wrote Schultz in his statement.

The RSU’s vest over a two-year period. In the graded schedule, 50% of the units vest a year after an employee starts working for the coffee company. After the second anniversary of a worker’s tenure, the other 50% of the restricted stock units vest.

If an employee leaves before all the units vest, all the vested RSUs are for the employees to keep. When there are unvested restricted stock units, they are forfeited once a worker leaves the corporation.

Starbucks’ RSUs pay off for employees in a shorter period of time than other corporations. Schultz has created a restricted stock unit system that greatly helps its employees.

8. IBM

The tech company IBM( NYSE: IBM) saw its stock rise as it bought the tech company Red Hat. Red Hat’s sales increased 18% from a year earlier after the acquisition. Victoria Greene, an analyst with G Squared Private Wealth, rates IBM stock a buy. She praises the company’s focus on cloud-based technology.

“IBM’s AI is leaps and bounds ahead of competitors since they have invested heavily in it for 10 years,” said Greene.

IBM’s restricted stock units benefit employees and CEO

Because of IBM’s strong stock, the corporation’s employees receive restricted stock units over a four-year vesting schedule. The RSUs vest at 25% each year on a graded schedule. The tech company’s CEO, Arvind Krishna, gets a similar deal to his employees. IBM detailed its RSU vesting period.

“RSUs will vest 25% on June 8, 2021, 2022, 2023 and 2024, provided Krishna is an active IBM employee on these dates ( unless certain requirements are met to be eligible for continued vesting. PSUs will be adjusted based on performance and will be paid out in February 2023,” noted IBM in its SEC (Securities and Exchange Commission) filings.

IBM’s graded vesting period enables employees and its CEO to reap many benefits from its compensation package.

9. Facebook

Facebook stock tumbles on ad boycott

A free speech debate is affecting Facebook stock. Facebook stock fell slightly after many companies are refusing to place ads on the social media company’s site to protest a Facebook policy. Facebook won’t take down controversial posts that are considered hate speech or misleading political ads by the companies.

The corporation pledged that it was trying to weed out misinformation on the site.

“We invest billions of dollars each year to keep our community safe and continuously work with outside experts to review and update our policies. We know we have more work to do,” said a Facebook spokesperson.

Despite the controversy, Rohit Kulkarni, executive director at MKM Partners says that the ad boycott of companies like Proctor & Gamble won’t greatly affect Facebook stock.

“Procter & Gamble is the largest advertiser in the world, but we think it accounts for less than 0.50% of FB’s revenues,” said Kulkarni.

Kulkarni agrees with Wall Street’s projections for 7% Q3 2020 growth.

“We believe near-term[Wall] Street estimates are reasonable and that there is upside potential given ad market recovery,” said Kulkarni.

Facebook RSUs helpful to workers

Despite the negative publicity, Facebook’s restricted stock units are beneficial to its employees. In Facebook’s RSU vesting period, the units vest on a quarterly schedule. In the graded vesting period, the employees vest 6.25% every three months. After vesting 25% a year, the RSU’s are fully vested after four years.

10. Intel

After the news that the aforementioned Apple was dropping Intel as a chip maker for its devices, Intel stock dropped. Despite the severance of their relationship, Intel took the partnership ending well.

“Apple is a customer across several areas of business, and we will continue to support them. Intel remains focused on delivering the most advanced PC experiences and a wide range of technology choices that redefine computing,” said Intel in a statement.

Despite the decline, some financial analysts want investors to buy the dip. Goldman Sachs rates Intel as a buy. The analysts say that more use of devices during the nationwide quarantine helped Intel.

“Despite the headwinds related to Covid-19, we are maintaining our estimates as we believe there are multiple near-term positive developments (i.e., potential strength/resilience in the high-end client CPU[ computer processing unit] and server CPU markets given a growing number of people working/studying from home) that could largely offset the headwinds (i.e., weaker consumption and enterprise spending),” wrote the analysts in a note.

Intel RSUs help employees even when they retire

The chipmaker’s restricted stock unit program is generous to employees. Intel RSUs distribute on a graded vested schedule. The restricted stock units vest at 25% over four years.

If retirees have unvested RSUs at the time of their retirement, they receive one extra year of vesting. That occurs for every five years of employment with Intel.

Intel’s restricted stock units are beneficial to workers even at the ends of their careers.

Restricted stock units a pivotal part of employee compensation

Corporations offer RSUs as a way to reward and retain employees. While it may not seem relevant to investors, they are connected. If a stock performs well, they can offer more benefits to employees and investors. With TradingSim charts and analysis, investors can find the best stocks that pay the best restricted stock units to its employees.

Working from home during the COVID-19 pandemic

Day trading stocks can be a successful way to create income- but it’s not easy. Many people want to make a profit in this bear market, but there are many challenges that day traders face in the COVID-19 era. This TradingSim article will explore how the real benefits and costs of being a day trader. The article will also teach day traders how to trade stocks from home and help them find the best strategies and stock picks to become a successful trader.

How do you get started day trading part-time?

Day trading involves quickly trading securities several times a day. Traders buy and sell stocks often throughout a trading day to make a quick profit. Volatility in the stock market helps day traders make a larger profit. However, stock fluctuations can backfire if a trader trades too hastily or makes a bad trade.

When is the best time to trade?

The best time to day trading is at the start of the day at 9:30 AM EST. The first hour of the trading day can be the most pivotal because there is more liquidity, when there is a higher volume of trading in the first trading hour. and there is the most volatility at the start of the trading day.

The other ideal time to day trade stocks is at the end of the trading day from 3 PM-4PM EST. Just as at the beginning of the trading day, high volatility at the end of the day can help day traders maximize profits.

What is a good day trading strategy?

Before traders get serious about day trading, they have to make some important decisions. Here are some things to consider before they start day trading stock strategy.

Determine whether you have the time and patience to day trade. Day trading is not a hobby. It’s a time-consuming job that takes up hours of a trader’s day. Even though day trading moves fast, a lot of methodical thinking is required to day trade stocks. Day traders also need excellent math skills, risk-taking abilities, and discipline to study the changes in the stock market.
Study the stock market. Day traders need to diligently study the stock market to be a successful trader. Traders have to possess a wide range of financial knowledge to withstand the ups and downs of the Dow Jones and NASDAQ. It can take years to master the stock market, so studying the nuances of the market is essential.
Study the different securities to trade. Day traders not only trade stocks. Traders have to research ETFs, foreign currency, or other assets to trade if they want to branch out beyond stocks. Novice traders may not realize that there are different rules and strategies for various assets.
Practice trading with simulated trading. Before traders risk their own capital, they should test their trading strategies. TradingSim would be a perfect outlet for traders to try out simulated trades before they decide to risk real money in the markets.
Start small, then expand. Once a trader has the capital, they should still slowly delve into trading stocks. Day traders should start small to minimize risk. If a day trader suffers losses, it won’t be as devastating if there is less money on the line. When a trader experiences success after three months, they can incrementally put more money into the markets. If they are still struggling after 90 days, they should maintain or even decrease the amount they have invested.

How much money do day traders need to start?

While there is no set amount to start day trading stocks, there is an amount that should be sufficient to weather the unpredictability of the stock market. When a day trader is ready to invest, they must have a lot of money saved to quickly buy and sell shares.

A trader should have at least $10,000 in disposable income ready to invest in the stock market. The Securities Exchange Commission notes that ideally, a day trader should have at least $25,000 in their day trading accounts. If a potential trader can’t afford to risk that much capital to withstand market volatility, they aren’t ready to day trade stocks.

A beginning day trader’s account also depends on what asset is being sold. To buy stocks, a trader needs at least $25,000. However, for day trading futures, $10,000 is recommended. For trading forex, $100 is likely the lowest amount needed. No matter what asset day traders buy and sell, all traders shouldn’t risk more than 1% of their trading income on one trade. For instance, if a day trader has $25,000 in their account, they should risk more than $2,500 on a single trade.

What equipment does a day trader need to work from home?

In order to treat day trading stocks like a work-from-home business, a day trader needs the right equipment. Traders should invest in a trading machine and trading software. Day traders should also have two monitors to watch charts and data.

The most important day trading equipment may be a steady internet connection. With a reliable wi-fi connection, traders have less risk of missing important trades if there’s an internet crash. A backup internet connection is also recommended for traders who are day trading at home.

Why is there a resurgence in day trading stocks?

Once investors start day trading stocks, they can join a plethora of new investors. There has been a recent revival in day trading for two key reasons. The recent volatility in the stock market has led many people to try to make money by day trading stocks.

Goldman Sachs analysts noted that the new influx of traders is driving movement in the options market.

“Investors are increasingly asking us about the participation of individual investors in the shares and options market. Our data suggests that individual investors are indeed a significant proportion of daily volume, ” noted Goldman Sachs analysts.

Sports betting drought leads to day trading increase

Another reason for the resurgence in day trading stocks is strangely enough because of sports. COVID-19 shut down sports events, so there were fans missing games to watch- and bet on as well. Instead of betting on the performance of LeBron James, gamblers are now betting on the performance of Tesla (NASDAQ:TSLA) stock.

In addition to trading on their own, sports gamblers are also following the stock picks from the head of a sports website. Barstool Sports’ Dave Portnoy has picked winning stocks during this bear market. He compares day trading in the current market to the unpredictability of a sports event.

“With the volatility, it is kind of like watching a sports game,” said Portnoy.

Jim Bianco is president and macro strategist at Bianco Research and monitors day trading trends. He noted that young gamblers are moving to day trading with the latest sports hiatus.

“Sports gambling is a huge business in this country and a lot of sports gamblers and a lot of these millennial gamers are now playing the stock market, day trading,” said Bianco.

What are the benefits of day trading?

After Buffett dropped his airline holdings, Portnoy bought stock in the troubled industry. When the airline stocks rebounded, he felt vindicated as a budding financial expert.

“I’m a little surprised that it’s become pretty well known within the financial community. That’s kind of our target audience regardless of what we’re covering and I think Barstool was popular in those circles to begin with,” said Portnoy.

Portnoy’s contrarian investing is a day trading strategy that can work if a day trader is diligent and studies the markets well. If a day trader is savvy with their trades, they may profit from going against the popular opinion of Wall Street experts.

Zero-commission apps lead to more day trading

The rise of Robinhood and other zero-commission trading apps are helping drive the rise of day trading. Andrew Laphorne is a stock analyst at Societe Generale. He said that new day traders bought cheap stocks as the economy cratered and profited as the market is slowly rebounding now.

“For all the mocking of Robinhood investors, their timing back into the market looks impeccable, with a significant pick-up in holdings as equity markets bottomed in mid-March,” noted Laphorne.

Airlines rebound with new day traders

Despite Warren Buffett selling airline stocks, young day traders are lifting the industry back up. An airline ETF, JETS, saw its value rise a whopping 2,000%. Millennial day traders purchasing the ETF led to its rebound.

Frank Holmes, chief executive officer of JETS issuer U.S. Global Investors, loves the recovery. He believes that young day traders buying the dip helped JETS’ value grow to $1 billion.

“All these millennials, being stuck at home with no bars to go to and no beaches to travel to, took their money and became day traders. They’re bored, they want to make money,” said Holmes.

Financial advisors cheer new growth in day trading stocks

Many financial advisors welcome the new breed of day traders. Nate Geraci is president of the investment advisory firm, the ETF Store. He sees Portnoy as a social media savvy version of investing giant Warren Buffett. Geraci also credits Portnoy for making day trading entertaining to his millennial followers.

“It’s really been a perfect storm. Investors are seeing firsthand the thrill of victory, the agony of defeat, and he’s doing it with large sums of money, so I think for younger investors, that’s really enticing,” said Geraci.

Day trading may be best for people who want to make quick profits from short sales. For short-term investors, day trading can be a quick way to earn money. Josh Brown is the chief executive of Ritholz Wealth Management and says day traders are just having fun day trading stocks.

“They’re not expecting to retire off of trading stocks. They’re having fun and they’re learning the market, and I think it’s great,” said Brown.

Day trading can also best for self-starters who want to work independently. Day trading stocks may be best for traders who learn best by learning on their own.

What are the risks of day trading?

While there are some benefits to day trading stocks, there are many risks associated with day trading.

Despite his recent success with day trading, Portnoy cautions that his Twitter followers shouldn’t heed all his financial advice.

“I’m not a financial advisor. Don’t trust anything I say about stocks,” said Portnoy.

While Portnoy’s day trading venture is currently paying off, it’s risky to follow advice from people who aren’t financial experts. In addition to not listening to experts, day traders shouldn’t just follow their emotions. Making rash trades based on emotion leads to more losses. Traders who buy and sell stocks without stop-loss limits can risk losing more capital than they can afford.

Day traders can lose a lot of money if they don’t limit their number of trades. Trading too much can lead to a lot of fees for traders. Setting stop-loss orders can help minimize risk. Many traders also buy stocks on margin and borrow too much money to trade stocks. Day traders should stick to a set limit on how much to trade and not depend too much on margin and leverage.

Financial experts warn about day trading inexperience

Day trading novices may feel a rush from their new venture, but there are risks. Caleb Silver, Investopedia’s editor-in-chief, believes that day trading beginners should be cautious with the large volatility in the stock market.

“People are new to trading and new to investing and want to take advantage of these wild swings,” said Silver.

“These are the most dangerous times to start day trading … This is when people really get hurt,” added Silver.

Silver noted that day traders must know their limits when trading so they don’t lose too much money.

“This is a super volatile time. You could lose your shirt in a day. You could gain two shirts back the next day, but you have to know what your limits are,” said Silver.

Mark Cuban cautions about day trading boom

Shark Tank star and Dallas Mavericks owner Mark Cuban is wary about the day trading boom. He thinks that zero-commission costs enable day traders to take more unnecessary risks.

“We have day traders who are able to go into margin with next to 0% interest. They’ve got nothing else to do. Their transaction costs are zero,” said Cuban.

Cuban also believes that once the economy slows again, there will be huge sell-off among day traders.

“You can also make the argument that this whole run-up is just buying the rumor. Once we start to really have definitive data on the other side, people are going to sell on the news, and if I had to make a bet, that’s it,” said Cuban.

Cuban also noted that the resurgence in the stock market will depend on how many workers are rehired.

“A key question is how many workers will be rehired and how consumer spending will fare once enhanced unemployment benefits end on July 31,” noted Cuban.

Cuban doesn’t think that day traders are fully prepared for another economic slowdown.

“We don’t know if all the jobs are going to be there, and we don’t know what happens with demand. I don’t think the market is truly understanding the challenges that we may be facing,” added Cuban.

Day trading rarely leads to profits

In addition to the risk of losing money, there is the risk of not earning much money at all. While many day traders tout the quick money that can be made, those profits rarely come through. A Brazilian study found that only 0.1% of day traders earned more than the nation’s minimum wage after almost a year of day trading stocks. The study noted the poor success rate of independent day traders.

“97% of them lost money, only 0.4% earned more than a bank teller (US$54 per day), and the top individual earned only US$310 per day with great risk (a standard deviation of US$2,560). Additionally, we find no evidence of learning by day trading,” noted the study.

Day traders should expect to lose a lot of money before they see any profits. Even if traders earn any income, they can lose portions of their wins through high taxes. Short-term gains are taxed at a higher rate than long-term capital gains.

What advice do day traders give?

Day traders can get advice from more experienced traders. Jason Bond is an experienced trader that touts his experience as a trader.

“Having trained multiple clients who’ve gone from cubicles with small trading accounts between $10,000 to $37,000 to successful, full-time day traders, making millions in just a few years, I have verified proof people can make the leap from their career to trading full time,” said Bond.

Bond also suggests that beginning day traders should get mentors to help them navigate the ups and downs of the markets.

“The best way to become a day trader is to learn from existing profitable day traders. There’s an overwhelming amount of theoretical material on the internet about how to day trade, but nothing beats learning from someone who is currently successful at it,” said Bond.

Day trading expert Brandon Wendell also says that not holding stocks for too long can lower risk.

“One of the best ways to control risk is limiting the length of the trade. The longer you are in a position, the greater the likelihood is that price could move against you. By day trading, you eliminate overnight and weekend risk, especially when you trade markets that close, like stocks,” said Wendell.

Discipline is key to day trading stocks

While Bond had success as a trader, many other day traders note that success doesn’t come easily. Deeyana Angelo is a managing director of Market Stalkers. She stresses that being a day trader requires a lot of training and discipline.

“Becoming a day trader is something that a lot of people see as an easy way to make money where you don’t need much experience – just click a few buttons and hey presto, you’re rich! But nothing is further from the truth,” said Angelo.

Brandon Wendell, an investment expert, noted that limiting risk and not holding stocks for too long is key to success as a day trader.

“Day trading is a very difficult performance discipline, much like becoming a professional football player or playing a musical instrument to a virtuoso level. You first need to have a natural talent, followed by years of practice,” added Angelo.

Merlin Rothfeld is an investment strategist that studies day trading. Rothfeld advises investors who are day trading stocks to be patient because they will monitoring screens all day. Rothfeld also doesn’t want traders to stray from a well-thought-out trading strategy out of fear or haste.

“Quite often, day traders will take trades because they are just sitting in front of their screen all day. A forced trade is generally going to be a losing trade. Always follow your rules,” said Rothfeld.

How much do day traders make?

A day trader’s salary can vary greatly. If a trader is working independently, they face an uphill climb to a steady salary. Freelance day trading is similar to a sales position. There are times when income is high, especially if trades are executed well. A day trader may also make very little money if the stock market tumbles or a trading strategy backfires.

An independent day trader’s salary will also depend on how much capital they have invested in the stock market. As noted in a previous TradingSim article about a day trader’s salary, an average day trader’s salary has a 20% annual return. If a trader has $100,000 in an account, they may have profits of $20,000 in the best-case scenario.

Day trading for a firm has a more stable salary. According to ZipRecruiter, the average salary of a day trader is $80,000. However, that depends on experience and the city a trader is located in as well.

If a day trader has years of experience and lives in a small town, that’s a substantial amount of money. However, if a day trader has substantial debt from buying stocks on margin, lives in a major city, and has other major expenses, that amount may not go as far as originally thought.

How does day trading at home compare to working from a firm?

There are many differences between day trading stocks at home and at a proprietary trading firm. When a day trader is working from home, they have more flexibility. Day trading stocks requires a lot of studying and commitment. Traders can focus on the stock market in their home offices and their trades without distractions in a noisy firm. Day traders can also keep more of their profits than a trader in a firm.

However, there are downsides as well. Many distractions from friends, family, and IT emergencies can derail a trading day. Day trading at home means that they have to shoulder economic burdens on their own.

For day traders in private trading firms, there are some advantages. Day traders in an office can have more help on a trading floor from more experienced traders. Day trading with a firm’s funds lessens a financial burden of day traders.

There disadvantages of being a day trader in a proprietary firm as well. Day traders in proprietary firms are just paid as contractors and not salaried employees. They also keep less of their profits than an independent trader. Day traders in firms often have to pay for training fees or give their employers a cut of their profits.

How does day trading at home compare to other work-from-home jobs?

Day trading can be much more challenging than other work-from-home jobs. There is a range of jobs that pay less and some that pay more than day trading at home.

Working from home is a growing option. A study from Upwork and the Freelancers Union found that over 50% of workers were working from home just three years ago. After the COVID-19 pandemic, that number is sure to increase.

If a trader from home can make $40,000 a year on average, there are jobs that pay less. Virtual assistants that perform administrative duties can make on average $26,000 a year. Freelance writers can earn a range from $10,000 to $30,000 a year.

Those careers pay less than an average day trader’s salary. There are some work-from-home jobs that pay more like in the customer service industry.

Brie Reynolds is a career development expert at work-from job site FlexJobs. She notes that customer service is an in-demand job that can pay more steadily than day trading stocks at home.

“Customer Service is the No. 1 field for remote jobs right now. This is a field without a lot of barriers to entry in terms of experience or education levels. Unemployed retail workers who enjoy helping people may be able to use their skills in communication, problem- solving and sales to transition to a remote customer service job,” said Reynolds.

Customer service jobs may pay as much as $60,000 a year. Data and IT work-from home jobs are the most lucrative. Data analysts can make $50,000 a year. A website support specialist can earn $100,000 a year.

Some jobs pay less and some are more lucrative than day trading from home. Day trading is on average at the low end of the spectrum with earnings of $20,000-$30,000 a year

How do day traders find the best stocks?

As noted in a previous TradingSim article about finding the best stocks to day trade, there are methods to pick top stocks. Day traders should look for stocks that have high volume to move quickly in and out of their positions. They can monitor them on financial websites like Yahoo Finance. TradingSim charts enable day traders to simulate trading and test out their strategies before investing in stocks.

Below are five stocks that would be best for day traders that are day trading at home.

1. Apple

As a TradingSim article noted, Apple(NASDAQ:AAPL) is a perfect stock for day traders. Apple is moving 22 million shares are bought and sold daily. The tech giant’s high volume makes the stock attractive to day traders.

Financial experts rate Apple as a buy

Many financial experts think that Apple is a buy in this bull market. Todd Gordon is managing director at Ascent Wealth Partners and monitors Apple stock. He believes that Apple stock can rise 40% over the next few weeks.

“If you look at the three advances since 2013, each has been at least 130% followed by a one-third giveback. The current advance is only 66%, so we can easily — if history is to repeat — see another 70% in years to come, putting us at $490 potentially,” said Gordon.

Steve Chiavarone, portfolio manager at Federated Hermes, also believes that a strong balance sheet and consumer demand will drive high volumes of Apple stock.

“Growth has been the new defensive. Strong cash flows have met strong balance sheets which means you haven’t been under pressure because you needed external financing, and your return on capital is safe,” said Chiavarone.

He also believes Apple “consumers have pent-up demand. They have stockpiled savings, and we expect the consumer to have a good second half.”

Charts show Apple stock a top pick for day traders

Blue Line Capital President Bill Baruch noted that charts show that Apple avoided a death cross. A death cross is when the 50-day moving average moves below the 200-day moving average. Apple has avoided that drop, which makes it a top pick for day trading, according to Baruch.

“It broke out above last year’s high, a big resistance level at $327. Now, that is support, and overall you also have a rising trend line from the lows in March, and for me $327 to $330 is going to be a huge support level,” said Baruch.

“I also want to point out that it did not get the death cross, and the fact that the 50-day moving average rejected crossing below the 200-day moving average in May — it fueled the upside as it has done in many of the tech stocks,” added Baruch.

Apple’s high volume of stock movement and bullish analysis from financial experts make the stock a top pick for day traders.

2. Facebook

As noted in a TradingSim e-book, Facebook(NASDAQ:FB) is a favorite stock for day traders. Facebook has 25 million shares moving daily. The liquidity makes Facebook an ideal stock for day traders to quickly exit positions. Facebook CEO Mark Zuckerberg noted that the company’s success depends on its Marketplace division and dependence on small businesses.

“Overall, though, our business depends on the success of small businesses. So, this is a moment where we feel that we’re well-positioned to be champions for small businesses interests and supporters of important infrastructure that they’re going to need in order to move online,” said Zuckerberg.

Financial experts bullish on Facebook stock

Financial expert Jim Woods says Facebook’s stock is outpacing other tech stocks.

“That stock is outpacing 97% of all other publicly traded companies in terms of relative price strength,” said Woods.

Citi’s Jason Bezinet predicts a $7 billion growth for the company because of its upcoming Shops e-commerce division. “

“The firm should benefit from: a) the continued growth in e-commerce and b) the growing propensity of consumers to shop within social media apps,” said Bezinet.

3. Tesla

Tesla(NASDAQ:TSLA) would be a great stock for day traders that want a stock with high volume and volatility. The corporation’s stock is trading at 16 million shares a day. The electric car company’s stock soared to $1,000 a share after a better-than-average rate of car deliveries.

Jefferies upgraded its price target of Tesla up to $1,200 after Tesla’s stock climbed. Analyst Phillipe Houchois wrote in a note to clients that coronavirus will drive consumers to want more electric automobiles like Tesla.

“We see COVID-19 as an accelerator of the transition to EVs and renewables, from consumers and public policy,” said Houchois.

Horchois also noted that Tesla is more advanced than its automobile competitors with its technology.

“Tesla remains significantly ahead of peers in product range, capacity and technology. Near term, EV-friendly incentives in the European Union and lower-priced Model 3 support second-half volume, making Tesla more resilient than peers,” wrote Horchois.

“Against expectations even a few months back, the gap with peers is widening, from product to battery tech/capacity,” added Horchois.

Some analysts bearish on Tesla stock

While Jefferies upgraded Tesla to a buy, Goldman Sachs downgraded its rating of Tesla down to neutral because of its high valuation.

“We’d look to become more positive on Tesla stock again if we had more confidence in the near to intermediate-term trajectory of fundamentals, or if valuation became more attractive. We maintain our view that the electric vehicle market offers attractive long-term growth, and we think Tesla will be able to sustain a leading position in EVs[electric vehicles] (and with solid margins),” noted Goldman Sachs.

Morgan Stanley also downgraded its rating because of something that may be a benefit to day traders- Tesla’s high volatility.

“While Tesla has long been an expensive stock, and we recognize that valuation has expanded for the entire market, we believe that there is a higher bar for Tesla’s fundamentals than other stocks that may have challenging near-term results given Tesla’s premium absolute multiple along with the historical volatility of Tesla shares,” said Morgan Stanley.

While establishment banks may disapprove of Tesla’s volatility, the high volatility and volume make the stock a good choice for day traders.

4. Microsoft

Microsoft (NASDAQ:MSFT) is another large-cap, high-volume stock that may be good for day traders. The corporation’s stock rose after a positive Q1 2020 earnings report. Jefferies analyst Brent Thill rated Microsoft stock a solid buy. The work-from-home boom during the recent quarantine boosted its Microsoft Teams service.

“The biggest beneficiary of the new work from home environment is in the productivity suite and especially Microsoft Teams, which has seen a large spike in demand,” wrote Thill in a note to clients.

5. Roku

Roku (NASDAQ:ROKU) is a streaming disruptor that has soaring stock and volume. The company has 19 million shares moving each day. Roku will partner with Kroger to use data to attract more customers. The move led Rosenblatt analyst Mark Zgutowicz to rate Roku stock a buy.

“Roku shopper data program, launched with one of the largest global grocery retailers, shows significant potential to alleviate friction between linear and CTV ad buys,” said Zgutowitz.

Roku’s stock rose 6% this year as more customers stayed home and canceled their cable subscriptions.

The high volume of Roku stock makes it a good buy for day traders.

Laura Martin is also bullish on Roku stock as more American viewers move from cable to streaming TV services.

“Roku had 45% (40 million of 88 million) of total connected TV homes in the US at 3/31/20, and therefore we believe Roku will be the winning aggregator of streaming TV and film content apps,” said Martin.

Analysis and patience key to day trading from home

To make money quickly from day trading at home, ironically, a lot of waiting is required. Building an effective trading strategy and studying the stock market is key. Working from home as a day trader can be a nice side hustle for beginners, but not a lucrative career to retire from in 30 years.

Despite what some traders on zero-commission apps may say, day trading is not a harmless get-rich-quick scheme. The stock market is cyclical and what goes up always eventually comes down. With TradingSim’s blogs, charts, and insights, day traders can learn more about how to withstand the unpredictability in the stock market to make money in the stock market.

Natural gas ETFs can be an effective investment option for traders. These exchange-traded funds can pay off for savvy investors-if they make the right choices. This TradingSim article will inform investors about natural gas ETF’s and how COVID-19 has impacted the industry as well. The TradingSim article will also help investors find the best natural gas ETF’s for them to improve their trading strategies.

What is a natural gas ETF?

Natural gas ETFs can possibly be more stable than individual stocks. When comparing stocks vs. ETFs, ETF’s may be able to provide less risk for investors. In natural gas ETFs, they invest in natural gas contracts or stocks to track the market price of the commodity.

How can investors buy natural gas?

Similar to emerging market ETFs, natural gas ETFs can be bought on the New York Mercantile Exchange or international exchanges outside the U.S.

How do investors trade natural gas?

There are many ways to trade natural gas ETFs. Some of the main points to trading are:

Set up a trading account. Investors can trade with a traditional brokerage firm or with a simple trading app.
Formulate a trading strategy. Investors can practice trading natural gas ETFs on TradingSim before officially diving in the natural gas ETF pool.
Study the risks. Just as investing with stocks, there are risks with natural gas ETFs. Every time investors trade an ETF, there is a fee, so they should make those trades wisely. Investors must monitor developments in the natural gas industry to determine if they will impact prices. Morningstar analyst Dan Culloton noted that being cautious trading ETFs is key. “The potential to undermine yourself with trading is very real, and you don’t have to trade a whole lot in order to sabotage a good ETF investment,” said Culloton.
Time natural gas ETF trades. It’s best to time trades so that investors don’t trade too frequently so they don’t risk too much capital. In addition to watching how often investors trade, they should also monitor what time they trade. Natural gas ETF trading is most volatile at the beginning and end of the day. Richard Ferri, CEO of Portfolio Solutions, noted that trading can be dangerous during those times of the day. “It’s called the ‘smile’ in the ETF world, because the price deviation of the ETF can be the greatest during the start and end of the trading day,” said Ferri.
Adjust a trading strategy as needed. If a strategy isn’t working or prices change, investors can make changes to their strategy and trade accordingly.

How do investors buy inverse natural gas ETFs?

If investors want to take advantage of falling prices of natural gas ETFs, they can buy inverse natural gas ETFs. Shorting natural gas ETFs comes with risk. When investors buy inverse natural gas ETFs, they are making short-term investments.

Inverse natural gas ETFs use derivatives, financial instruments that get their value from other assets. The derivatives include futures contracts that are bought and sold at a certain date at a set price. After taking a short position, investors can earn more profits if natural gas prices plummet.

While there can be great profits if the prices continue to fall, investing in inverse ETFs is risky. Inverse natural gas ETFs also carry higher fees than other natural gas ETFs. One example of an inverse natural gas ETF is ProShares UltraShort Bloomberg Natural Gas (KOLD).

ProShares UltraShort Bloomberg Natural Gas

How did Russia and Saudi Arabia affect natural gas ETFs?

The decline in oil prices started in March when Russia and Saudi Arabia couldn’t agree to reduce their oil production. The nations were supposed to reduce production to increase demand and increase oil prices. Russia and Saudi Arabia flooded the markets with oil and there were deep repercussions. Oil prices dropped to their lowest levels since 1990. Prices plunged from $70 to $21 a barrel as a result.

After a month of plummeting oil prices, the impasse reached a breaking point. President Donald Trump, Russian President Vladimir Putin, and Saudi Prince Mohammed bin Salman all reached an agreement. The nations agreed to limit oil production by two million barrels a day.

Despite the agreement, Martijn Rats, oil expert at Morgan Stanley is pessimistic. He sees the agreement with OPEC ( Organization for Petroleum Exporting Countries) as ineffective against lower oil prices in the future.

“The OPEC+ agreement will not prevent sharp inventory builds in coming months, and near-term oil prices in the physical market will likely remain under pressure,” said Martijn Rats.

How did COVID-19 impact the industry?

In order to end the oil war, Russia made the agreement not only to make peace with Saudi Arabia. The nation wanted to fend off any further economic downturns with the onset of coronavirus. Putin critic Vladimir Milov made an observation about the oil war. He noted that the Russian government came to an agreement with Saudi Arabia to end the oil war for a key reason. Putin didn’t want to dig into the nation’s oil reserves to boost Russia’s economy.

“They are afraid of future shocks, whether on oil markets or global recession, and don’t want to approach the next wave already having spent their reserves,” said Milov.

In addition to the Russia- Saudi gas war, coronavirus also impacted the industry. In the current bear market, the coronavirus negatively affected the natural gas industry. The COVID-19 outbreak led to worldwide shutdowns and a decreased demand for oil. The warmer weather in the spring also meant a diminished need for natural gas to heat homes as well.

What will happen to natural gas demand after COVID-19?

Goldman Sachs analyst Samantha Dart noted that declining oil production in March may cause drop in natural gas prices in the future. If oil prices continue to decline, she believes that natural gas prices can struggle to rebound over the next year.

“As we move into 2021, this path of declining oil and gas production, if sustained, will likely result in an exceptionally tight summer 2021, which suggests current forward prices are not sustainable,” said Dart.

Shell hard hit by COVID-19 economic impact

As a result of the oil and natural gas volatility, Shell (NYSE:RDS-B) is making drastic changes. One of the biggest oil companies in the world announced that it would reduce its dividend payout. The payout has been cut to customers by 66%. The company’s CEO Ben van Beurden, recently announced that the company’s dividend would be cut down to 16 cents.

“Considering the risks of a prolonged period of economic uncertainty, including the weaker demand for our products and lower and the less stable commodity prices, we do not consider that maintaining the current level of shareholder distributions is in the best interest of the company and its shareholders,” noted van Beurden.

Shell’s CEO also predicted that the oil war crisis will decrease demand for oil and natural gas.

“Two real big problems are facing the[oil and natural gas] industry. One is that, of course, everything has become much more challenging macro-wise, and we know it’s going to get worse before it gets better. The biggest challenge we find ourselves is this crisis of uncertainty that we have…It’s not just the oil price, that’s just one aspect. What will happen to demand?”

He also predicted that “will come down massively…The reduction in demand that has been predicted just for April is going to be 29 million barrels of oil a day. We don’t know what that may bring. So there’s a lot of challenges coming from that,” said van Beurden.

Will COVID-19 crash natural gas profits?

Because of the coronavirus crisis, Shell’s Q1 2020 profits fell to $2.9 billion from $5.3 billion in Q1 2019.

As a result of the decrease in oil and natural gas refinement, van Beurden noted that Shell’s future guidance was uncertain.

“The margins in downstream refining margins, who knows where that will go, who knows actually where the viability of our assets will go in many cases? We have seen people having to shut-in simply because they do not have the logistics inbound or outbound…It is that level of uncertainty that you cannot model scenarios,” said van Beurden.

Shell’s chief financial officer, Jessica Uhl, noted that Shell’s cash margins may continue to be impacted by COVID-19.

“We are looking at a major demand destruction that we don’t even know will come back. So the oil price may come back, but if the volumes are significantly lower, we still have a major dislocation, ” said Uhl.

Natural gas companies must reevaluate during coronavirus crisis

As oil and natural gas companies reel from the COVID-19 pandemic fallout, the business model of natural gas ETF’s may have to change. Artem Abramov is head of global oil research at Rystad Energy. He believes that the current low prices of oil and natural gas will hurt the industry.

The current price environment is more or less a complete disaster for the majority of shale[oil and natural gas] companies,” said Abramov. “At $30 a barrel, many companies would be able to adapt gradually. But at $20 a barrel, many players – especially those with poor balance sheets – will struggle financially.”

Abramov also noted that investors may be unwilling to bail out troubled oil and natural gas companies.

“Even before the oil price crash, the business models began to change. Investors historically provided a lot of capital to the industry to finance the capital growth. Last year, they began asking these companies to come up with more disciplined and balanced capital programs and focus more on profitability,” said Abramov.

Natural gas companies cut dividends after COVID-19 fallout

In response to diminished demand for natural gas in the spring, many natural gas companies are cutting dividends to save money. Jeffrey Germain, director at Brandes Investment Partners, noted that dividends must be cut to reduce debt.

“Long term, it is appropriate to cut the dividend. We are not in favor of raising debt to support the dividend,” said Germain.

Jonathan Waghorn is a co-manager of the Guinness Global Energy Fund. He noted that oil and natural gas companies have to reduce dividends if they don’t spend enough capital expenditure.

“The measures taken by Shell seem to be sufficient but, over time, if Shell (for instance) does not spend enough capital expenditure then production will start to fall and the underlying cash flow will not be sufficient to sustain the dividend long term,” said Waghorn.

Natural gas slump leads to job losses

Because of the decreased oil and natural gas demand, BP announced it would slash 10,000 jobs. The oil behemoth’s CEO, Bernard Looney, wrote about the job cuts in a company email.

“We will now begin a process that will see close to 10,000 people leaving BP – most by the end of this year,” said Looney.

“To me, the broader economic picture and our own financial position just reaffirm the need to reinvent BP. While the external environment is driving us to move faster – and perhaps go deeper at this stage than we originally intended – the direction of travel remains the same,” added Looney.

After BP’s Q1 2020 revenue dropped by 67%, Looney noted that the corporation will focus on more renewable energy and less on oil production.

“It was always part of the plan to make BP a leaner, faster-moving and lower-carbon company,” said Looney.

Could renewable energy hurt natural gas ETFs?

In addition to BP vowing to move to renewable energy, cleaner energy sources could hurt natural gas as well. A study from the International Energy Association noted that demand for natural gas could fall by 5%.

According to researchers, lower-cost renewable energy could also impact natural gas ETFs.

“This trend is affecting demand for electricity from coal and natural gas, which are finding themselves increasingly squeezed between low overall power demand and increasing output from renewables. As a result, the combined share of gas and coal in the global power mix is set to drop by 3 percentage points in 2020 to a level not seen since 2001,” noted the researchers.

Tudor, Pickering, Holt & Co. analysts also noted that decreased natural gas exports to Europe and increased renewable energy could hamper natural gas prices in the future.

“We see natural gas pricing skewed to the downside in the near term, as LNG feed gas losses and production increases are expected to weigh on the commodity,” said the analysts.

Could another COVID-19 outbreak hurt natural gas demand?

BMO Capital Markets analysts noted that another COVID-19 outbreak could further hurt natural gas prices.

“The possibility of another Covid-19 outbreak remains a risk to the demand outlook, along with the likelihood of slower economic growth due to job losses and rising debt levels. Government stimulus packages have so far cushioned the economic blow; however, they can’t last forever,” said the analysts.

Can natural gas prices recover?

Despite the COVID-19 impact, natural gas analyst Samantha Dart believes that the decline in gas production and consumption will impact the U.S. gas markets until next year.

“Specifically, we expect that the cut in associated gas production, although very significant, will show in U.S. gas markets late enough this year,” said Dart.

Dart and other Goldman Sachs analysts predict that the recession will further depress natural gas prices.

“However, as we enter the 2020/21 winter, we expect production declines to be visible enough that gas prices will rally sharply in our view to help summer 2021 reach comfortable inventory levels,” said Dart and the other analysts.

Similar to Goldman Sach’s pessimistic prediction, other financial experts are also bearish on natural gas after the Saudi and Russian oil overproduction. Andy Weissman is the CEO of EBW AnalysticsGroup. Weissman believes that the government shutdown led to a reduction of natural gas in many offices and businesses. He doesn’t have faith that the natural gas prices will increase.

“U.S. electricity demand is beginning to rapidly decline due to coronavirus-related containment measures,” wrote Weismann in a note to clients.

Moody’s analysts are also pessimistic about the future of natural gas ETFs.

“Wholesale markets like [regional transmission organization] PJM have already observed meaningful reductions in peak and around-the-clock demand. Lower demand is translating into weaker power pricing, negatively impacting revenues for gas- and coal-fired resources and denting the independent generation sector’s credit outlook,” noted Moody’s analysts.

“Our medium-term price bands reflect our fundamental assessments of the prices necessary for producers to reinvest in and replace their hydrocarbon assets, which deplete as they are produced,” the Moody’s analysts said. “But we do expect that realized oil prices will average below our fundamental price range in 2020, and possibly 2021,” added the Moody’s analysts.

Shell hopeful about future of natural gas

Despite the decline in natural gas prices and demand, Shell’s CEO, Ben van Beurden is still optimistic that natural gas use can rise.

“We still very much believe that with the current supply-demand outlook, this is a fundamentally strong sector that will grow at a rate that is close to 4% per year,” said van Beurden.

Shell’s CEO also noted that the company will make investments to get production and profits back to pre-pandemic levels.

“We will obviously flex our investment program to be aligned with where we believe the sector will go, but the profitability of the business and the outlook of this business is going to be as good as what you saw before the pandemic,” said van Beurden.

Natural gas may recover sooner than oil

After COVID-19, some financial experts say natural gas is already down to a low price. So, any further downturn won’t hurt natural gas ETFs any further. Patrick Morris, executive vice president and director of Unicorn REH, thinks that natural gas can withstand the downturn.

“Natural gas at $1.70 to $1.85 is very depressed and were it not for all of the residual gas from fracking, significantly below replacement cost,” he says. “Since the industry is already pretty well rung-out, this new downturn might not be as painful,” said Morris.

The International Energy Agency also believed that natural gas won’t be as hurt as oil by the COVID-19 fallout.

“The decline is less than the anticipated fall in oil demand, reflecting the fact that natural gas is less exposed to the collapse in demand for transportation fuels,” said the International Energy Agency.

Which natural gas ETFs are best for investors?

When investing in natural gas ETFs, investors can choose these options. The following are five of the best natural gas ETFs.

United States Natural Gas Fund

In the United States Natural Gas Fund (NYSEARCA:UNG), investors can trade the largest natural gas ETF. It invests in futures contracts for natural gas. The United States Natural Gas Fund also follows the movement of natural gas prices. The fund provides access to the futures market without the risk of actually investing in the high-risk market of futures. Investors who are buying assets at a pre-determined rate face a lot of risk. The natural gas ETF helps mitigate that risk.

As of early June, the ETF has assets of $374.1 million in the fund. The United States Natural Gas Fund tracks the New York Mercantile Exchange (NYMEX). The NYMEX contract is the Henry Hub Natural Gas Futures. The Henry Hub is the primary benchmark of natural gas.

UNG a buy despite falling returns

Even though UNG’s year-to-date returns are down -35.35%, investors that want to trade in natural gas ETFs should choose this fund. Bullish investors can hold on the fund until natural gas prices rebound. Bearish investors can short this fund for short-term profits.

Alerian Energy Infrastructure ETF

In addition to the UNG, another natural gas ETF is the Alerian Energy Infrastructure ETF(NYSEARCA:ENFR).

While upstream natural gas production is volatile, middlestream production has heled steady. The Alerian Energy Infrastructure ETF predicted growth for its middlestream holdings in a note earlier this year.

“Some of the largest US and Canadian midstream companies are guiding to robust annual dividend growth in 2020,” said Alerian.

“After growing its dividend by 25% in 2019, Kinder Morgan (NYSE:KMI) is planning another 25% increase in 2020, which would bring its dividend up to $1.25 per share on an annualized basis. The outsized dividend growth marks a recovery from KMI’s 2015 dividend cut,” added Alerian.

“Additionally, with midstream companies approaching a free cash flow inflection point, particularly in 2021, it’s possible that excess cash flow will drive further dividend growth,” according to Alerian.

Paul Baiocchi is a senior Investment strategy advisor at ALPS Advisors and monitors natural gas ETFs. He thinks that midstream natural gas ETFs can be a good investment for savvy traders.

“Midstream provides critical energy infrastructure while offering defensive energy exposure and attractive income,” Baiocchi said. “Company-level improvements leave midstream well positioned to withstand the current energy downturn, particularly the larger names,” said Baiocchi.

Kinder Morgan struggles after COVID-19

Kinder Morgan (NYSE:KMI) is a key holding in the Alerian Energy Infrastructure ETF. The natural gas company had a negative earnings report because of COVID-19 and the oil wars. The company’s Q1 2020 earnings were $1.848 billion, a decline of 5% year-over-year. David Michels is the chief financial officer of Kinder Morgan. He spoke about the disappointing results in the company’s revenue report.

“Revenues were down $323 million, driven in part by lower natural gas prices versus Q1 of 2019. The lower natural gas prices also drove a decline in the associated cost of sales of $285 million,” said Michels.

Michels also noted that the natural gas industry faces upheaval as production slows down.

“Natural Gas segment is projected to be down 4% from planned for the full year, driven by lower gathering and processing activity levels. Products is expected to be down about 17%, driven by lower refined product volumes, lower crude pipeline volumes and unfavorable price impacts,” added Michels.

Kinder Morgan CEO says COVID-19 caused decline

Kinder Morgan’s CEO, Kim Dang, acknowledged that the coronavirus caused a decline in natural gas demand.

“Sharp declines in both commodity prices and refined product demand in the wake of the COVID-19 pandemic clearly affected our business and will continue to do so in the near term. Largely due to the non-cash impairments noted above, we generated first-quarter earnings per common share loss of $0.14, compared to earnings of $0.24 in the first quarter of 2019,” said Dang.

Despite a drop in Q1 2020 earnings per share, there was some good news. Dang noted that its discounted cash flow( DCF) was still positive.

“Adjusted earnings per share in the first quarter of 2020 were down 5 percent compared to the first quarter of 2019. At $0.55 per common share, DCF per share was down $0.05 from the first quarter of 2019, yet we achieved $664 million of excess DCF above our declared dividend,” said Dang.

Dang also noted that while there was a decline in Kinder Morgan’s revenue, there was an increase in natural gas transportation volumes.

“At the same time, we saw strong financial contributions from the Natural Gas Pipelines group in the first quarter that were offset by the impact of the sale of the U.S. portion of the Cochin pipeline in the fourth quarter of 2019. Volumes on our gas pipelines were up 8 percent year over year and strength in transportation volumes has continued into April,” said Dang.

Kinder Morgan is part of the Alerian Energy Infrastructure ETF that investors could buy if they want to buy a stock before it rises again.

VanEck Vectors Unconventional Oil & Gas ETF

The VanEck Vectors Unconventional Oil & Gas ETF(NYSE:FRAK) is a newer natural gas ETF with $9 million in assets. It seeks to replicate the Market Vectors Unconditional Oil and Gas Index.

Noble Energy earnings hit by coronavirus

Noble Energy(NYSE:NBL) is a holding in the VanEck Vectors Unconventional Oil ETF. The oil and gas exploration company had a Q1 2020 earnings report with mixed results.

Noble Energy posted Q1 2020 revenue of $1.02 million, a 3% decline from Q1 2019. A plunge in oil and gas sales during the nationwide quarantine hurt the company’s profits.

David L. Stover, Noble Energy’s CEO, noted that because of the coronavirus fallout, the company was lowering its capital expenditure.

“First, in response to the current commodity environment, we’ve lowered our 2020 capital plan by more than 50% versus original guidance, a decrease of $900 million,” said Stover.

Noble Energy’s chief financial officer, Kenneth Fisher, noted that even though spending was down, the company still had liquidity and available cash.

“Noble Energy ended first quarter with $4.4 billion in financial liquidity, including $1.4 billion in cash and $3 billion of available borrowing capacity on our revolving credit facility,” said Fisher.

Fisher also spoke about how Noble was still optimistic about its future.

“We are confident on our financial position, with robust liquidity and a well-managed maturity profile, solid hedge protection and the cash flow contribution of our long-term international gas assets,” said Fisher.

Hedge funds bullish on Noble Energy

Despite the worse-than-expected Q1 2020 earnings report, there is some good news for Noble Energy. Hedge fund Diamond Hill Capital bought the plunging stock at a discount. The company explained why it bought Noble Energy stock.

“We purchased oil and gas exploration and production company Noble Energy, Inc. at an attractive discount to our estimate of intrinsic value as equity values for oil-producing companies declined rapidly in the quarter,” noted Diamond Hill.

If investors want cheap oil and gas stocks, the Fidelity Select Natural Gas Portfolio ETF may be a good choice.

First Trust Natural Gas ETF

The First Trust Natural Gas ETF has $99 million in assets. The year-to-date performance is down 37%.

Southwestern Energy increases production

In the First Trust Natural Gas ETF, Southwestern Energy is a key holding. During the Q1 2020 earnings report, CEO Bill Pay noted that its natural gas production has increased. That’s in contrast to a decline in other natural gas companies.

“Wells in the rich area of West Virginia produced a high rate of natural gas. By way of example in this area, we recently set a company record for an initial production rate of 170 million cubic feet per day equivalent from a four-well pad placed to sales in the quarter. The swift action to pivot our capital toward natural gas was done in a short period of time and without additional cost to the company,” said Pay.

Pay also noted that the natural gas company’s capital investment is expected to increase.

“As for capital, our capital guidance released in February included a 20% reduction in capital compared to last year. At this time, full-year capital investment is expected to be around $860 million,” said Pay.

Even though Southwestern’s Q1 2020 earnings were below expectations at $592 million, there was still good news for the stock. Southwestern stock rose 26% through 2020 because of its natural gas production. The First Trust Natural Gas ETF could be an option for investors.

Energy Select Sector SPDR Fund

The Energy Select Sector SPDR Fund (NYSEARCA:XLE) is an ETF with natural gas holdings. The fund has $8.3 million in assets. The natural gas ETF had a poor year-to-date performance of -45.90%.

ConocoPhillips had major losses because of COVID-19

ConocoPhillips( NYSE:COP) is a holding in the Energy Select Sector SPDR Fund. In its last earnings report, the oil and natural gas company reported losses in the billions.

“ConocoPhillips today reported a first-quarter 2020 loss of $1.7 billion, or ($1.60) per share, compared with first-quarter 2019 earnings of $1.8 billion, or $1.60 per share,” reported ConocoPhillips in its press release.

Despite the losses, ConocoPhillips reported that it had adequate working capital.

“For the quarter, cash provided by operating activities was $2.1 billion. Excluding a $0.5 billion change in operating working capital, ConocoPhillips generated CFO of $1.6 billion,” said ConocoPhillips.

“You saw in today’s press release that we ended the quarter with total liquidity of nearly $14 billion, including the $6 billion available under our revolver,” added ConocoPhillips.

The oil and gas company also noted that it would suspend future guidance because of its COVID-19 caused losses.

“Given ongoing uncertainty, continued market volatility, and production curtailments over the coming months, the company recently announced that its original 2020 guidance items should not be relied upon and that further guidance has been temporarily suspended,” said ConocoPhillips.

iShares U.S. & Gas Exploration ETF

The iShares U.S. & Gas Exploration ETF(NYSEARCA:IEO) tracks equities in the oil and gas sector. It has $187 million in assets. Its year-to date performance is -59. 65%.

Diamondback Energy has losses because of coronavirus

Diamondback Energy(NYSE:FANG) is a holding in the iShares U.S. & Gas Exploration ETF. The corporation had a disappointing Q1 2020 report. In the report, the company had an adjusted net income of $230 million, a 25% decrease.

Despite the diminishing returns, Diamondback CEO Travis Stice noted the strength of the company.

“Diamondback is prepared to preserve our strength through this cycle and protect our stockholders’ investment. Our industry, through the free market, has responded as quickly as ever to this unprecedented global demand shock without the need for regulatory intervention.

Stice also noted that Diamondback is cutting oil and natural gas production because of its $272 million net loss.

“Diamondback is choosing to curtail production in May because of economics, which should be the baseline for decisions on whether or not to produce barrels. The addition of regulatory uncertainty to operators in the state of Texas is a distraction to managing the social and economic crisis we are all currently facing,” said Stice.

Diamondback Energy is a stock that suffered large losses, but may be able to withstand the current economic volatility.

COVID-19 devastated natural gas ETFs, but there is hope for investors

The coronavirus had a terrible effect on the natural gas industry. The pandemic shut down production and lower demand. However, natural gas ETFs often have reliable dividends for patient investors. Natural gas ETFs can also rebound from this brutal year if the economy recovers. An increase in natural gas prices and demand could also lift natural gas ETFs. TradingSim charts and analysis can help traders find the best natural gas ETFs to invest in to diversify their portfolios.

impact of coronavirus on stock market crash 2020

The recent weeks have been the scene of a worldwide health crisis that has drastically impacted the stock markets and global economic growth. The Coronavirus (COVID-19) spread from China into a worldwide pandemic and caused an unprecedented stock market crash in February 2020. The S&P 500 has experienced a collapse of about 35.5% in almost 30 days. As has said Joseph Stiglitz, Chief Economist at the World Bank,

This is a different kind of crisis than normal crises. It’s just not a problem of aggregate demand.

We will discuss the COVID-19 pandemic and its impacts on global economies, and ultimately how this pandemic was responsible for the 2020 stock market crash. I will focus on the following:

Lessons learned, expectations, and projections of this crisis, not only on the stock market but also on world economies.
We will also analyze the potential changes that will appear in the aftermath of the crisis.
Reactions of governments and international institutions in response to the crisis.
Finally, we will present the reaction of some advanced economies to this health crisis.

Before discussing these points, let us first talk about how the COVID-19 pandemic started and how it spreads the world.

What are the main causes of COVID-19 pandemic and how does it happen?

Several scientific papers document that the coronaviruses were first discovered in the 1930s in domestic poultry and usually cause respiratory, gastrointestinal, liver, and neurological diseases in animals. Only 7 coronaviruses are known to cause disease in humans. Four of the 7 coronaviruses most often cause cold symptoms. The COVID-19 pandemic is an ongoing pandemic characterized by acute, sometimes severe respiratory disease in humans. This is caused by a new coronavirus SARS-CoV-2.

There exist other kinds of coronaviruses such as MERS-CoV which was identified in 2012 in the Middle East, while SARS-CoV-1 was identified earlier in different regions around the world. The new Coronavirus that the world is experiencing is an advanced version of the SARS-CoV-1. It was identified in December 2019, in the city of Wuhan, in China. According to the international society of infectious diseases (ProMED), more than 677 570 cases have been identified in the U.S.A, on April 16, 2020, with a mortality rate of 5.1%. The situation is nowadays less pronounced in China.

The COVID-19 has been characterized by Zhu, Zang & Wang (2019) and they show that SARS-CoV-2 is 75 to 80% identical to SARS-CoV and is closely related to bat coronaviruses. That’s why bats are considered as the primary vector for the virus. It can also be identified in animals like cats, camels, and cattle. This is usually called zoonotic transmission. According to researchers, a large majority of people who got the disease early on were linked to a live seafood and animal market in China.

What are the mechanisms of the Coronavirus transmission from one to another?

The first cases of COVID-19 may come from animals sold in the market and has mainly spread from person to person (see Sabir, Lam, Ahmed et al. (2016)). Usually, SARS-COV-2 spreads when an ill person coughs or sneezes. Sick persons can emit saliva from their mouth at 6 feet from their position. If you inhale them, it is possible to get the virus and get sick.

Another way to get the virus can come from touching an infected object or an infected person and therefore touch your mouth or nose. Several papers demonstrate that the COVID-19 can live for more than 4 hours on different types of objects. We can notice a lifetime of 4 hours on Coppers, 24 hours on Cardboards, and up to 3 days on Plastics.

Researchers have also documented Airborne transmission (demonstrating that the virus can live in the air for 3 hours and if you breathe the infected air, you can get the virus) and fecal-oral transmission (showing that virus particles can be founded in sick people’s poop).

Studies have also documented the possibility to get infected by COVID-19 even if one has not traveled or has not been exposed to a sick person and it’s not possible to identify the source of the infection. This is usually called the “community spread”. These cases have been identified in California.

There are also people who do not manifest the symptoms of the virus but can also be a vector of transmission. The risk of infection of the Coronavirus can increase with age. Children are less likely to be exposed to the virus, while people of over 65 are most likely to get severely sick. Also, people working or living in hospitals, or having a weak immune system are highly exposed to diseases. For example, people suffering from severe obesity, diabetes, asthma, cancer, heart diseases, etc.

What is the current situation of the coronavirus pandemic around the world?

According to the website Worldometers, at the date of April 17, 2020, more than 2,232,627 cases of COVID-19 have been identified with 153,296 deaths and 568,231 recoveries, which represents a mortality rate of 6.8% and a recovery rate of about 25.4%. The statistics from the World Health Organization (WHO) are slightly similar. Up to 113 countries, areas, or territories are concerned by the virus.

Europe and North America are the most affected zones in the world with 45% and 33.5% of confirmed global cases respectively, while Africa and Oceania are the less affected continents representing 0.9% and 0.35% of the global cases respectively. Even if Asia is the continent where the virus took-off, it’s only the third continent affected by this virus, representing only 15.9% of the global cases.

In terms of deaths, Europe and North America registered the largest number of death in the world which represents 62.4% and 25.5% of the total deaths respectively. In contrast, Africa and Oceania registered the lowest number of deaths, which is 0.66% and 0.05% of the total number of deaths respectively.

impact of coronavirus on stock market 2020 — Table 1: Comparison of the number of cases and deaths per continent (our calculations with the data of the website www.worldometer.info, April 17, 2020).

United States of America (USA) is the most widely affected country registering 31.3% of the total cases in the world and 24.1% of the total number of deaths. It is followed by Spain (8.4% of the total number of cases and 12.7% of the total number of deaths) and Italy (7.7% of the global number of cases and 14.8% of the global number of deaths).

We can also notice that 7 of the 10 most-affected countries in the world are from Europe, two are from Asia and the USA is the only one representing significantly the whole American continent. Ten countries represent 77.5% of the total number of confirmed cases in the world with 86.7% of deaths registered in the world.

Concerning the distribution of COVID-19 since December 31, 2019 to April 17, 2020, it can be observed that the number of confirmed cases has experienced an exponential evolution with an upward sloping shape from December 31, 2019 to April 01, 2020 but started to flatten since the beginning of April as reported in the following figure by the European Centre for disease prevention and control.

Statistics on Coronavirus worldwide — Figure 1: Distribution of COVID-19 cases, worldwide, up to April 18, 2020 (*European Centre for Disease Prevention and Control* )

In contrast, the number of deaths is still displaying an exponential evolution and the most represented countries are Europe, Asia, and America.

Statistics on Coronavirus worldwide 2020 — Figure 2: Distribution of COVID-19 deaths, worldwide, up to April 18, 2020 (*European Centre for Disease Prevention and Control* )

At the worldwide level, we are still on the upward sloping shape either in terms of the total number of cases or in terms of the number of deaths.

How has the Coronavirus pandemic affected the Stock Market and world economies?

With the outbreak of COVID-19, global stock markets have experienced a severe crash, beginning February 20, 2020 and lasting thru March 23, 2020. This global market crash is comparable to the Great depression in 1929, in the USA. Starting February 20, stock markets around the world registered the largest weekly decline since 2008. Global demand shocks and the crashing oil markets (due to the conflict between Saudi Arabia and Russia due to Russia’s refusal to curb oil production) has been another catalyst that led to a serious increase in the volatility and reaction in the stock market.

With the multiple risk factors of the Coronavirus pandemic, almost all the countries in the world have decided to impose a massive worldwide lockdown in order to enforce social distancing. A large majority of companies have shut down with employees working from home. Only some essential services are open to the public such as groceries, restaurants with delivery services or curbside pickup, hospitals, and doctors offices.

When taking a look at the main observed indexes in the global stock market, we can observe that the S&P 500 observed a drop of about 35% in almost 1 month. The Dow Jones has experienced a drop of 36%, which is approximately 10760 points loss for the period February 20 to March 23rd, 2020. The CAC 40 and Dax 30 are under pressure in Europe dropped by almost the same rate, which is 38% in the same period. The FTSE 100 in Japan has reported a collapse of 30%, while in India, the Nifty index dropped by almost 50%.

impact of coronavirus pandemic on S&P 500, DAX 30, FTSE 100, CAC40 — Figure 4: Evolution of the most observed indexes in the stock market during the crash 2020 (Google Finance)

The volatility index (VIX) has exploded and increased 432% during that period, signaling total panic in the markets. This explosion of the volatility was rapidly followed by a quick drop starting by March 23, 2020.

impact of coronavirus pandemic on dow jones and vix — Figure 5: Evolution of the VIX and Dow Jones during the stock market crash 2020 (Google Finance)

The airline sector has suffered tremendously. Airline companies around the world have canceled their flights. Shares of United Airlines and Delta Airline were down by more than 50%.

The International Air Transport Association (IATA), reported that worldwide airline passenger traffic will fall by 48% for this year due to the coronavirus pandemic. Projections estimate losses of $314 billion in revenues due to the severity of the COVID-19 pandemic, as business travel demand dropS and government travel restrictions increase. More specifically, Asia is projecting a loss of 50%, while Europe and America are estimating a 55% and 36% loss in passenger traffic compared to the third quarter of 2019, respectively.

Additionally, the World Trade Organization is projecting in the best-case scenario of about 12.9% and the worst-case scenario a drop of 31.9% in air cargo volume for this year. Furthermore, the industry is experiencing a liquidity crunch, with a cash burn of about $61 billion for the second quarter of 2020.

impact of coronavirus on the airline transport — Figure 6: Global trade forecast points to a steep decline in air cargo volume (World Trade Organization (WTO), IATA Economics, 09 April 2020).

In contrast to the airline industry, essential industries, are more resilient to the 2020 stock market crash. As essential industries, we have Health care, Food, basic transportation. Indeed, goods and services produced in these industries are more inelastic in the sense that the aggregate demand does not change significantly even if the economy is in recession.

For example, Vertex Pharmaceutical (VRTX) has reported an increase of 24% since January 2020. On the same line Walmart (WMN) and Kroger (KR) have gained an increase of 12.25% and 11.45% in the same period respectively.

Stocks that perform during the stock market crash — Figure 7: Some resilient stocks during the stock market crash 2020 (Google Finance)

Additionally, even if online-based companies such as Zoom (ZM), Amazon (AMZN), Netflix (NFLX), eBay (EBAY) have been impacted by the crash during the period February 20 – March 23, those companies have reported a quick recovery of their drawdown. For example, Zoom (ZM) has gained an increase of 42% since the beginning of the 2020 stock market crash. At the same time, Amazon (AMZN) and Netflix (NFLX) have gained 10.31% and 9.52% respectively. The other stocks I mentioned also follow the same pattern.

Where are we now and what can we expect going forward for world economies ?

According to the International Monetary Fund (IMF), the global economy will experience the worst recession since the great depression and this is the first time where developed economies and developing countries are in a recession.

Indeed, with great lockdown, the world economy may expect a decrease of global growth rates by almost 3% during the second quarter of 2020, representing a downgrade of 6.3 percentage points from January 2020, which is 30 times the effect observed during the global financial crisis in 2008 – 2009. These projections assume that the majority of countries in the world will experience their peak in terms of pandemic spread during that period.

In the best-case scenario in which the pandemic widespread is efficiently controlled, it can be projected that the United States, Eurozone, and Japan will experience a decrease of their GDP growth rate by 6%, 8%, and 5% respectively, while China and India might be the beneficiary of this crisis, reporting a positive GDP growth rate of almost 2% in 2020 (see IMF world Economic Outlook ).

In the worst-case scenario with more uncertainty in the controlling procedure of the health crisis, one may expect an additional loss of 3 percent for this year and eventually a fall of the world GDP growth rate of 8% in 2021 if the virus persists and this with hurt the financial conditions of all the countries around the world with the drastic increase of the global unemployment rate. These results were expected as it has been documented by Wang, Yang & Chen (2012).

Indeed, the authors document that a contagious disease doesn’t only affect the health and lives of people but also leads to economic growth stagnation, but it can produce abnormal returns in the biotechnology sector. On the same line, the European Commission produced a previous report estimating the macroeconomic effects of a pandemic in Europe using a quarterly macroeconomic model (see Jonung and Roeger (2006)). Indeed, the European Commission shows that the effect could experience a GDP growth rate drop in the range of 1.6% – 4.1%. Similar studies have been done for the United States, Canada, Germany.

impact of a pandemic on Macroeconomics — Table 3: Estimated output losses due to future pandemic (Jonung and Roeger (2006)).

Concerning Sub-Saharan Africa countries, it is expected that the COVID-19 pandemic will lead to a decrease in the GDP growth rate and that could reach the range of -2.1 to -5.1% in 2020. This is evaluated as an output loss between $37 billion and $79 billion, including trade and value chain. Additionally, this crisis could affect also the food security by reducing agricultural production by up to 7% and a decrease of good importation by up to 25% (See World Bank press release April 9, 2020). The oil exploitation and tourism sector have been also affected due to the severe reduction of external demand.

What are the expected long term major changes in the economy?

With the object of respecting the social distancing, the great lockdown has imposed a large majority of the population to stay at home. This sudden stop of the economy has pushed people to seek new ways to connect and hang out with their family and friends and even to connect with business partners.

On the same line, companies are looking for new ways to run their business. Video chat is taking off especially in America and Europe. For example, applications such as Google Duo, Nexdor, and Houseparty are experiencing a huge increase in their traffic (see Similarweb).

Indeed, these applications have gained an increase of 12%, 73%, and 79% respectively, in daily traffic since January 2020. On the same line, the new way to teach classes in schools is by using applications such as Zoom, Google Classroom, Microsoft Teams, Google Hangouts.

On the other hand, applications for delivery services such as Uber Eats, GrubHub, Delivery.com, Postmates, DoorDash, Caviar have also gained in terms of usage as the on-demand food is expected to increase and be a $365bn industry.

Applications for entertainment such as Facebook, Youtube, Netflix, and Whatsapp have also gained in terms of utilization. We expected that these internet activities will increase significantly in the aftermath of the crisis.

How to fix the 2020 stock market crash according to the economic theory and what are the government’s reactions?

As we already know, the infectious diseases do not affect only the health and lives of peoples but also the whole economy of all countries around the world, we expected governments to react at the macroeconomic level and response proportionally to the sectors suffering from this Health and Economic crisis. More specifically policymakers should think about not only monetary policies but also policies encouraging public spending in order to encourage the private sector to produce but also to stimulate aggregate consumption.

Indeed, according to the popular Taylor rule, in order to encourage production, Central banks should cute the interest rate so that private firms can take more credit and invest more and therefore recruit more employees. By increasing of employment rate it will lead to an increase in consumption. To boost more this approach, Central banks usually print more money in the economy by buying assets from the private banks and short term bonds from governments. This is called quantitative easing.

These strategies become more important when it is observed that the short term interest rate is closed to zero. This is the situation that most of the advanced economies are experiencing. Indeed, the interest rate in the United States and Canada is almost the same and is currently evaluated at 0.25%. We can observe lower rates and even negative rates in Europe. For example, the short term interest rate in France was reported at -0.36% in March 2020. Almost the same rate is observed in Italy, Germany, and other countries in the EURO Zone.

Additionally, policymakers in advanced economies have planned a recovery strategy which is mainly based on implementing a fiscal stimulus program. The main goal of this policy is to guarantee that even if there is a drastic increase in the unemployment rate, the aggregate consumption in the economy is sustained at a certain level. Currently, the United States, Canada, France, the United Kingdom, and Germany have already decided the amount to deploy for this program. For example, in the United States, Congress decided for a budget of $2.3 trillion stimulus bill to address the COVID-19 pandemic. In Canada, the budget for this purpose is evaluated at $75 billion. The main idea of this fiscal program is to offer a direct cash payment of $2000 per month during the pandemic period to all eligible persona and small businesses. In France, the package is evaluated at $49 billion, while in the United Kingdom the government is promising a budget of $430 billion and $810 billion in Germany.

Aside, the International Monetary Fund (IMF) is planning a lending capacity of $1 trillion to support the different vulnerable countries from this crisis and are encouraging official bilateral creditors to support their partners for these circumstances. Indeed, some bilateral creditors have prolonged the payment deadline of poor countries in response to this crisis Furthermore in direction of the developing countries and especially for sub-Saharan Africa countries, the World Bank deployed up to $160 billion in financial support for the next 15 months to reinforce their response to the COVID-19 pandemic. This financial support is mainly oriented to help vulnerable businesses and improve the public health reaction.

Conclusion

The pandemic is still ongoing and the uncertainty of the world economy and the stock markets is huge for these recent weeks. Even if we started to see a recovery in the stock market, the panic is still in the market with overreactions of market participants.

The airline industry is one of the most affected sectors while the biotechnology and tech industries are less affected. Moreover, China and India are the countries that will benefit the most from this crisis.

The governments in the advanced economies are already implementing the stimulus package. The problem is that this policy can only hold in the short term and not in the long term. This means that if there is more uncertainty in the world in terms of this pandemic duration, the economy can suffer more and we can have a second phase of the world recession and stock market crash.

Another concern is the capacity of developing countries to address this health crisis and economy recession as their economy is highly dependent on the importation, tourism, and oil price.

In overall, it is expected that all the countries would definitely experience a significant increase in the economy digitalization.

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