Back in January, as news came out of China about a novel virus that was rapidly overwhelming health care facilities, I began speculating on what it could mean for the rest of the world.

At that time, a friend asked me: “Do you think this is the next great pandemic?” My response was “I don’t know, but this is how the next one starts. We may look back on this in a decade and not really remember these events, or we may look back on this as the event that changed everything.”

At this point, it’s looking more like the latter. Let me be clear. I am not prone to hyperbole. But this pandemic will have significant, long-term ramifications on how we live our lives and how we invest our money. As I explained in an analogy to Utility Forecaster subscribers last month, it’s kind of like Pearl Harbor. On December 6, 1941 Americans were living in one reality. The next day their reality changed forever.

How Quickly Things Have Changed

In the span of a month, our reality has changed forever.

My career has been one of scenario planning. I try to anticipate and head off bad things before they happen, and then have contingencies in place if they do happen. I have thought about surviving a global pandemic for probably 20 years. There are parts that are playing out as expected.

However, there are parts that aren’t.

The main thing I always focused on was the survival part. I hadn’t given as much thought to the economic part. We have just never seen anything before that resulted in the cancellation of major sporting events and concerts to try to prevent the spread of a deadly virus. Schools and businesses shut down. The government is cutting checks for the entire country.

That’s all unprecedented. It’s like the Spanish flu pandemic and the Great Depression all wrapped up in one.

Yet Wall Street and many investors seem to believe that life will quickly return to normal as cases subside. I do not believe that.

What to Expect

It seems likely that as with the Spanish Flu pandemic of 1918-1920, there will be waves. We are in the first wave. Even before this wave crests, there is a push to open up the economy. And that push is understandable. We can’t allow a massive failure of businesses in America. I look around and wonder whose doors will remain closed when they are allowed to open.

I see some states being aggressive and some being cautious. Many businesses will have to change how they do business. I think there will be an inevitable resurgence and we will learn by trial and error which approaches are working.

Remember that the second wave of Spanish Flu killed the most people by far. After surviving the first wave, I think it’s very possible that people begin to get a false sense of security and don’t stick to behaviors that have kept them safe.

Protecting Your Finances

As an investor, I see a great deal of risk in certain industries and a great deal of opportunity in others. I don’t know when theme parks will be able to open again. That’s a major source of revenue for a company like Walt Disney (NYSE: DIS). When will people feel safe flying and going on cruises? How many people will continue to work from home after this is all over? Will restaurants fill back up soon? Those are things that have major implications on portions of the travel and leisure sector. They also have major implications on oil demand.

Because I think the recovery from the pandemic will be slow, oil demand will remain depressed for quite some time. Even after OPEC, Russia, and the U.S. (among others) agreed to cut oil production by 10 million barrels per day, oil prices still slipped below $20 a barrel. The cuts are a drop in the bucket considering the unprecedented decline in oil demand. I just don’t foresee a quick return to normal for the oil industry, which in turn will result in many financial casualties.

I do foresee a reasonable economic climate for some sectors, such as utilities and consumer staples. We are entering a period in which these defensive sectors will be popular for quite some time. To the extent that you have disposable income to invest, I think these sectors warrant your attention. Many of the other sectors will be turnaround stories, but there’s still plenty of downside risk in them. We’ll witness lots of bankruptcies.

I’ve just described our new normal. We must learn and adapt.

Editor’s Note: In the above article, Robert Rapier gave you his unvarnished assessment of the pandemic’s consequences for the economy and financial markets. He also highlighted a few areas of opportunity amid the crisis.

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