COVID-19 created one of the deepest and quickest demand shocks our world has ever seen. Businesses were shut down and jobs were paused or eliminated altogether as the pandemic forced people and companies to adjust the way they operate.
Fortunately, life should be able to slowly return to normal at some point. Here we will weigh what events could start to make the pandemic pain ebb, and how that could impact stocks like Boeing (BA -1.55%) and DocuSign (DOCU 1.06%).
Image source: Getty Images.
How we get to the other side
While fiscal stimulus has certainly provided much-needed aid to Americans in need, the real benefits will come from the biotech sector.
Pfizer is set to announce if their COVID-19 inoculation is effective in November and will apply for emergency use authorization next month if that is the case. Moderna also expects to know if its vaccine is effective by next month. In total, over 130 vaccine candidates are currently in human and animal trials; the economy needs just one effective and scalable vaccine to have a real impact on COVID-19's longevity and intensity. Leading infectious disease expert Dr. Anthony Fauci expects wide-scale distribution to be a 2021 event.
Furthermore, therapies from Regeneron Pharmaceuticals, Gilead Sciences, and others have been granted emergency use authorization by the Food and Drug Administration or are waiting on that decision. While therapies do not provide immunity, they do have a meaningful impact on lowering the mortality rate and reducing the fear of infection.
How the economy will be impacted
Let's assume one of the vaccine candidates will work and can be widely distributed -- what would be next for stocks?
In a world where the public feels far more protected against COVID-19, perhaps non-socially distanced activity can resume. This could be a strong boost to companies in the entertainment, travel, and hospitality industries, as well as those that rely on brick-and-mortar foot traffic.
Boeing's operations have been extremely impacted by the current pandemic. People simply aren't as interested in going on destination vacations while this pandemic persists and corporations are leaning on other sources of communication like Zoom Video Communications and DocuSign to substitute non-essential business travel. It does have a unique issue in the grounding of its 737 MAX; but still, as long as COVID-19 dominates our lives most of those planes will be empty either way.
Over the last several months, Boeing's gigantic order backlog has eroded, as airlines remain unsure about future air travel demand. The 20-year industry demand forecast took a 2% hit due to the pandemic. Its once reliable free cash flow has turned severely negative and it has had to raise debt to weather the pandemic.
Cruise lines, casinos, restaurants, and other pandemic-hit sectors are seeing a similar pattern of shrinking demand due to social distancing. Many of these companies have experienced significant cash burn and the need to raise funds just like Boeing. These impacted industries also rely on consumers feeling safe, and a vaccine would play a vital role in fostering that needed confidence.
Conversely, companies aiding productivity and connectivity amid COVID's required social distancing have benefited by the pandemic. DocuSign's e-signature product has enjoyed a demand boost from enforced social distancing and its stock has followed suit.
Image source: YCharts.
While a vaccine allowing life to normalize will be great for the industries hardest hit by the pandemic, DocuSign and the rest of the work and live-from-home names could be hurt. Beyond DocuSign, companies such as Zoom and Peloton Interactive are strong examples of organizations enabling life to continue amid social distancing.
In a normal world, brick-and-mortar gyms, physical meetings, and on-premise signatures will most likely return in some capacity. At some point, bars will fill, arenas will pack in fans, and travel will pick back up. That's not ideal for the organizations boosted by COVID-19, but it is good for the businesses that are gradually opening back up.
What next?
The biotech industry will be what leads us out of these scary times. Whenever that finally happens, the Boeings of the world -- which saw demand shrink due to needed social distancing -- should benefit and remote living enablers like DocuSign could see growth slow.
