We will continue to see plenty of companies and stocks flourish in the post-Covid-19 era, even after the Fed turns off the spigots of its recent interventions. But investors will need to conduct a new kind of forensic study to discover who the winners will be.
Mr Buffett’s second pillar of betting on US blue-chips, as a way to wager on global growth, no longer works as well in an era of localisation. The US, China and parts of Europe are all developing national champions in sectors such as technology, which holds a disproportionate weight within the S&P 500. It is impossible to know yet how deglobalisation will play out in the long term. But in the short term, the increased competition will surely dampen US share prices.
Some industries will be safer investments than others. Travel — and anything related to it — is unlikely to rebound soon. As bond investor Jeffrey Gundlach noted last week, Mr Buffett bailing out of airlines was the negative equivalent of his doubling down on banking stocks in the wake of 2008. He was making a bet that the long-term fortunes of an entire sector will change. In retail, it is hard to imagine that many big brands won’t follow J Crew into bankruptcy. Banking faces increased risk as corporate insolvencies rise, so the sector’s share prices will probably stay depressed. So, too, for small and midsized companies that don’t have teams of lawyers to push them to the front of the bailout queue. Many will surely be gobbled up by larger competitors as they flounder.
Even within seemingly Teflon-like sectors, such as technology, there will be divergence by company. Microsoft is booming amid coronavirus, while Apple chief executive Tim Cook says the company is in “the most challenging environment” it has ever seen.
All US companies will have to live with a new level of political risk that will make it difficult to predict returns — or their regulatory future. Not only is there growing tech nationalism among both Republicans and Democrats. There is also rising concern about corporate concentration, which Democrat Joe Biden is making a central issue of his presidential campaign.