How Will The COVID-19 Delta Variant Affect Retail Stocks?
We are entering another key phase of the COVID-19 impact on the stock market. Previously initial shutdowns hammered retail stocks. Additional shutdowns and CDC guidance seem certain now as a result of the spread of the Delta variant.
The initial COVID crash of March 2020 caused a significant dip in retail and travel stocks. Another shutdown would cause a similar dip. At the time of writing, many retail stores are bringing back mask mandates which seems like an eerie prelude to another shutdown.
As an investor who may look to capitalize off this opportunity, we urge caution. Many smaller retail names incurred significant revenue losses during the first shutdown. Another shutdown could see some retail names closing permanently.
Stocks To Look Out For Should Another Shutdown Incur
Another shutdown would likely send the broader market into turmoil. A shutdown as a result of the Delta variant mixed with inflation woes spells bad news. If a dip should occur lookout for stocks that
- Have a proven track recorded, handled first shutdown well
- Great cash flow, or cash reserves
- Large corporate entities that can afford shutdowns. E.g Walmart, Target.
- Online giants that are “COVID Proof”. e.g Amazon
Timing the dip is impossible. We have no clue when a shutdown could come, or if it will come. A good rule of thumb is to keep large cash reserves in your portfolio to buy any dips or to hedge long positions. Keep a lookout for new government or CDC regulations.
Chances Of Shutdown 2
The Delta variant of COVID-19 is extremely infectious, and preliminary data suggests it could be even more deadly than previous COVID strains. Preliminary data also suggests having antibodies from different COVID strains offer little to no resistance to the Delta variant. Coupled with lower than anticipated vaccine rates and relaxed mask mandates, it could brew a storm for disaster.
Some companies have begun preliminary shutdowns and have workers returning to the work-from-home system. New York has a surging COVID rate, Hollywood sets are beginning to shut down.
It doesn’t look good.
The broader market doesn’t seem worried yet. The S&P 500 index, SPY is about 2% in the past month. More short-term however SPY is down .11% in the past week, a rare red week in this seemingly never-ending “post”-COVID bull run.
What To Do From Here?
- Keep a look out for new mandates
- Monitor Delta variant studies that may tell a new story
- Monitor Federal Reserve’s response, more money being printed spells a bad beat for the market.
- Make sure you are not overleveraged on a stock that a COVID shutdown will negatively impact
- Hedge long positions with SPY/QQQ Put leaps