The Future of the Economy

Editor’s note: Read the latest on how the coronavirus is rattling the markets and what investors can do to navigate it.

Narrator: Within the first 90 days of 2020, collectively, our plans changed. Many bustling cities became ghost towns as lockdown orders went into effect. Restaurants closed, travel demand plunged, and many workers left their offices to begin working from home.

Investors may have started wondering what this means for the future of the economy. Morningstar's chief U.S. market strategist David Sekera believes the pandemic's long-term impact on economic growth will be minimal. However, the health crisis has ramped up the adoption of budding consumer trends. We think some industries have become overheated, but others are being overlooked.

Let's start with the future of work. Our estimates found 45% of employed U.S. workers were working from home at the peak of the lockdowns. Remote working came with new challenges like technology access and children at home. However, many thrived in this new environment. So, will this new trend continue?

David Sekera: While we do expect growth in the full-time remote workforce, we anticipate many workers will return to their offices in a hybrid model, working a few days in the office and a few days at home.

Narrator: Investors quickly realize the work-from-home trend would benefit tech companies, but Morningstar is recommending investors tread carefully, as tech has ascended into overvalued territory. Some company valuations imply unrealistic future scenarios.

Travel demand plunged due to travelers canceling business and leisure trips during the pandemic. Planes were grounded, hotel occupancy dropped, and many commuters stopped commuting. Oil prices briefly traded at an unthinkable negative price in April 2020. That means oil producers had to pay buyers a price to take oil off their hands as storage facilities filled up.

Sekera: In the short term, we believe leisure travel will rebound more quickly than business travel. Car trips will outpace flights. Local travel will outperform international, but in the long term we're anticipating most travel and travel-related sectors will return to prepandemic levels in 2023.

Narrator: The coronavirus crisis has created an inhospitable environment for the restaurant industry. Shutdowns and social distancing cut total industry revenue in half in March 2020, compared to prepandemic levels. Eat-in restaurants recouped some sales as eateries reopened by the end of June. However, their revenue still paled in comparison to prepandemic levels.

Sekera: The $2 trillion CARES Act helped many restaurants survive while learning to adapt. They revamped their operations to handle an increase in takeout and home-delivery orders. This trend towards takeout and home delivery was already capturing a larger share of restaurant business before the pandemic. Those restaurants that are best positioned to survive have healthy balance sheets, are able to offer customers robust digital ordering, and have the ability to expand their delivery and drive-thru capabilities.

Narrator: Growth in online sales accelerated as people quarantined at home and many traditional brick-and-mortar retailers closed their doors. This chart shows the surge in nonstore retailers sales between February and September 2020. Numbers from the U.S. Census Bureau show total retail sales only rose 7% during the same period.

Sekera: Rising online sales have shown brick-and-mortar stores what they need to do to survive in this new competitive environment. They must provide a competitive online presence, but they also need a combination of convenience, a premium shopping experience, and the service to attract customers to their physical stores.

Narrator: The pandemic has had broad impacts on our society and has accelerated some consumer trends. These trends created numerous investment opportunities, and while some of those are already gone, there is still value to be uncovered. Go to morningstar.com to discover those opportunities.