The Impact of Covid

Susan Jung |

One cannot underestimate the impact that the Covid virus pandemic has had on businesses. Restaurants, movie theaters, personal service care businesses, and the travel industry have been massively impacted.

Airline Layoffs

Just this week, Southwest announced that they would lay off employees for the first time in the history of the airline. This is not an isolated move as other companies in this industry have begun to furlough staff and it is expected that layoffs will grow industry wide to over 40,000 workers. Each of these employees will need unemployment benefits and will be spending less money which will be a negative hit to the economy. 

A CNBC article summarized the Southwest news.  Here are a few excerpts:


Begin quotes

If Southwest moves ahead with job cuts, they would be among first involuntary furloughs in the carrier’s nearly 50 years of flying. The airline last month warned more than 400 other workers, including mechanics, that their jobs could be cut.

The Dallas-based airline said it sent federally mandated notices advising workers their jobs could be at risk to 6,828 employees, including more than 1,200 pilots, 1,500 flight attendants, 1,110 customer service staff, and more than 2,500 ramp, cargo and other operation staff.

The furloughs would take effect either March 15 or April 1, or within two weeks of that date, unless the carrier reaches cost-cutting agreements with unions or Congress passes additional aid for the sector, the airline said. 

Such furlough warning letters are generally given to workers 60 days ahead of a potential furlough and at least one union, representing the company’s pilots, dismissed the move as a negotiating tactic to pressure employees.

“Today marks a sad milestone in the history of Southwest Airlines,” Weaks said in a video message to pilots.

End quotes


Source: Southwest Airlines warns it could furlough 6,800 employees to cut costs
December 3, 2020, by Leslie Josephs 

Economic Struggles

Why do I bring this up?  

In the euphoria people feel during the recent stock market rally, it's important to recognize that the economy itself is still struggling. We are likely to see negative GDP growth in the first quarter of next year as the Covid virus accelerates and the vaccine distribution slowly rolls out. Just this week, the city of Los Angeles announced a new stay at home order which undoubtedly will impact that area’s economy. 

There are going to be economic consequences that need to be sorted out as the pandemic winds down. Some businesses will change permanently. Some will benefit long-term. There will be winners and losers and careful analysis is required in making a determination which those will be.

Being Opportunistic....with Patience

When investing, one must look past short-term news towards long-term opportunity. It's also important to recognize that ignoring short-term headlines can be dangerous when one is making investment judgments. 

As I mentioned earlier in a previous note regarding cash holdings, we are looking to distribute cash into assets that we believe will survive this pandemic crisis that are currently being punished based on short term headwinds. We will continue to search the wreckage for opportunities. 

There sometimes is a panic or eagerness to get cash invested but we need to be diligent and prudent before we place money in this type of market environment. You will no doubt see adjustments in the near future as we analyze investments for inclusion in portfolios. 

Stay tuned.

The opinions expressed herein are provided for informational purposes only and are not intended as investment advice. All investments involve risk, including loss of principal invested. Past performance does not guarantee future performance. Individual client accounts may vary. Although the information provided to you on this site is obtained or compiled from sources we believe to be reliable, Destination Wealth Management cannot and does not guarantee the accuracy, validity, timeliness or completeness of any information or data made available to you for any particular purpose. Any links to other websites are used at your own risk.