Three Possible Reactions

By Hoda Mehr Fri, May 1, 2020

Hey Scoopers,

Despite the grim economic outlook and data, the stock market ended the day only slightly in the red. — More on that in the “Overall Market” section.

Beyond the overall market, COVID-19 pandemic didn’t have much impact on a heart pump manufacturer, while disappointing a luxury handbag maker. — More on that in the “What’s Up?” and “What’s Down?” sections.

Oh, by the way, there are three ways you may have reacted to the stock market’s crash in mid-March. How did you react? — More on that in the “Water Cooler” section.

But, first, here is a recap of what happened in the market on yesterday:

Market Recap

• U.S. markets: All three indices finished Thursday in the red. Scroll down to the “Overall Market” section to read more.
• Cryptocurrency: Bitcoin’s price managed to hold above the $8,500 level.

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Still Optimistic

Red, green, red, green, red … That’s the rhythm of the market, so far. A few specific pieces of news drove the stock market’s move into the red zone on Thursday. The jobless claims reached above 30 million workers. Moreover, the Fed’s chairman discussed that the highly expected V-shaped recovery might be too optimistic. He elaborated that the second quarter’s economic data will not be any better or could be even worse than what we have seen in March and April. When you read about the grim outlook of the economy on Thursday, one can argue that the market’s reaction on Thursday was quite optimistic. All three indices did end the day in the red but only slightly. Investors still remain optimistic.

COVID-19 Couldn’t Stop Heart Pumps

So, what happened?

Shares of Abiomed (Ticker: ABMD) were up more than 12% on Thursday. The company is a maker of proprietary mechanical circulatory support devices (a.k.a a heart pump) used to be one of the high-flyer stocks in the healthcare industry. However, in 2019, the company struggled and was dealing with reports that questioned the effectiveness of its technology. Therefore, it has experienced a drastic stock price decline in 2019. In the latest quarterly earnings report, Abiomed announced a spike in the adoption of its heart pumps, and investors decided to close their eyes on the temporary effect of the COVID-19 pandemic on its sales. After all, Abiomed is the sole owner of the technology and has no competition.

It was about time to see the stock recover from last year’s struggles. Proprietary technology is the best kind of competitive moats investors love to bet on.

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A Grim Short-Term Outlook

So, what happened?

Shares of Tapestry (Ticker: TPR) were down more than 13% on Thursday. Don’t let the strange name trick you. Tapestry is the parent company of well-known brands such as Coach and Kate Spades that reported its quarterly earnings report on Thursday. Unsurprisingly, COVID-19 has led to a significant drop in the company’s revenue, store closure, and sky-high operating costs. The impact was even higher than expected, and the stock price shows it. Interestingly, the day before the release of the quarterly earnings, investors were either hopeful or were shorting the stock, and we saw a surge in the stock price.

Despite the decline, Tapestry is among companies with a strong balance sheet that perhaps can weather the COVID-19 storm. Nevertheless, the short-term outlook is grim, and investors know it.

Three Possible Reactions To A Market Crash

So what happened here?

How an investor reacts to the market’s decline says a lot about who she is as an investor. We can imagine three possible reactions to a stock market decline.

Blissful: If this Water Cooler section is the first time you are thinking about how to deal with a stock market crash, the chances are that you fall in the Blissful category. Even if you knew about it, if you didn’t open your brokerage account to see what’s going on or read at least 2-3 articles per hour from sources you trust to understand what’s going on, you are definitely a blissful investor.

Maniac: Have you been logging into your brokerage account at least once a day since the start of the COVID-19 market crash? Are you reading several articles, jumping between articles to make sense of it all? Have you asked yourself, “should I sell?” ten times every hour? Did you cuss the Gods and the lady luck for ruining your plans for buying a vacation house? Did you … you get my drift. You are a Maniac.

Intelligent: You saw the news of the market decline through whatever routine you have to keep yourself informed about the world. Most likely, you didn’t do anything in the first few days, beyond reading a few articles from the authors or sources you trust. Once you realized the downward trend is meaningful enough that some very well-managed companies are getting closer to becoming undervalued, you took the watchlist out. You used the cash you have had on the side for such occasions and hit “Buy” a few times, not too many though. You wanted to stretch your cash for as long as possible to benefit from possible further decline. That’s it, and you moved on with your life. If that’s you, congratulations!

We published an extended version of this post on Stock Card’s blog if you’d like to read more. However, the more important question is which of the three possible reactions is the way you have responded to the COVID-19? Email us at members@tradestocks.com, and share your thoughts, questions, and ideas.

About the Author

The authors of this Scoop are the editorial team at Stock Card, led by Hoda Mehr. Hoda Mehr is CEO and Co-founder of Stock Card and the host of Renegade Investors podcast. She runs a community of 40,000 stock market investors and manages Stock Card's successful flagship portfolio, Roll with Our CEO, on Stock Card Portfolio Store. Hoda is an Economist with an MBA from Concordia, John Molson School of Business. She applies behavioral economics, data journalism, and storytelling to all aspects of her work. Before starting Stock Card, Hoda worked as a strategy and insights lead at technology companies including Symantec, Aimia and Sony. Create a free account to do your stock market research easily and mistake-free: Stock Card Stock Card