Given the strength in the stock market, while the economy is struggling, there's understandable confusion about where to invest. There's a convincing case that is buttressed by the recently strong price action - the market has already discounted the economic weakness. The stimulus from the Fed and federal government are enough to offset the loss in economic activity. Further, there's been progress in several vaccine candidates.
The bear case is that the crisis has just started. The economic weakness is slowly filtering through to the rest of the economy. State and local governments are going to face a crisis due to steep drops in revenue from a lack of sales taxes. Monetary policy has already been fully deployed. Democrats and Republicans won't be able to come to another agreement given the recovery in the stock market, the upcoming election, and entrenched positions on several issues like assisting local and state governments, an extension of unemployment insurance, and more stimulus checks.
Consumer Staples
One way to thread this needle is with consumer staples stocks. The Federal Reserve has communicated that they aren't even going to think about raising interest rates until the end of 2021. This zero interest rate environment will ensure a premium for dividend-paying stocks. While the 10-year Treasury note pays 0.66% interest, the consumer staples ETF
Consumer staples stocks tend to outperform in periods of loose monetary policy, especially as they tend to coincide with periods when the economy is underperforming. These companies also have huge balance sheets which means they can take advantage of low rates and borrow money for cheap to buyback shares. The sector also sees increased demand when investors anticipate deteriorating economic conditions.
The sector underperforms during periods of accelerating economic growth when investors are more attracted to higher-growth opportunities. This scenario doesn't seem likely especially in the short-term as the surging coronavirus case counts in states that were the first to reopen, indicate. Even assuming that a vaccine passes muster, there's the challenge of producing them on a mass scale, paying for it to be distributed, and then convincing the majority of the population to get vaccinated. It's easy to imagine this becoming politicized just like wearing a mask.
In terms of their businesses, they are well-insulated, as consumers will pull back on discretionary items before they cut back on essential, household items. Further, the demand for these companies' products wasn't significantly affected during the 2007-2009 crisis when there was much more damage to household incomes and retail spending due to the lack of significant, fiscal stimulus. Finally, household formation is increasing due to the coronavirus as many people are leaving urban areas for the suburbs and rural areas. This is likely to lead to increased demand for items produced by companies in the sector.
