coronavirus pandemic –

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.

How did COVID-19 impact natural gas ETFs?