By Aman Kumar
From the operations of corporations to the day-to-day lives of consumers, the COVID-19 pandemic has impacted nearly all facets of American life. The intersection of these extremes can be captured through the S&P 500, the stock market index often used to indicate the state of the economy. Though the index suffered price declines starting late February, that period was its shortest bear market in history. Since then, the S&P 500 has reached all-time highs, achieving the largest gain in a 103-day period in 87 years. Tech stocks are performing exceptionally well. Apple, Microsoft, and Amazon remain the highest-weighted stocks on the index. That being said, other industries have been able to keep up, performing equally well, if not better.
The best-performing stock on the S&P 500 is Carrier Global, a 105-year-old manufacturer of heating, ventilation, and air conditioning (HVAC) systems up 143% from last year. Carrier’s success despite the pandemic has largely been due to its production of essential goods. The firm has seen a surge in demand as households look to upgrade their HVAC systems in the age of teleworking and retail stores look for new ways to attract customers. With this increased demand for HVACs during the pandemic, Carrier has been quick to fill the gap.
The company’s differentiation in a tight market can be attributed to its continued innovation. After seeing lower demand for air filtration systems in commercial buildings, Carrier created OptiClean, a portable machine that removes contaminants in the air, in just three weeks. The success of this move has been appreciable. The company has already sold thousands of units of the product.
In line with this innovation, Carrier has begun looking to the future. The firm already manufactures refrigeration equipment for transporting food and pharmaceuticals by truck. It now aims to further apply these technologies by potentially producing refrigerated trucks to transport the coronavirus vaccine.
Similarly to Carrier, non-tech companies that harness innovation are finding success in meeting the evolving needs of the pandemic. Healthcare stocks have been making strides in this regard. DexCom, a medical device manufacturer, for example, is right behind Carrier in terms of total year-to-date returns. Biotechnology giant Regeneron Pharmaceuticals, with nearly 60% annual returns, has also been beating established tech stocks like Nvidia.
Companies selling necessities are also doing well. While e-commerce giants like Amazon have squeezed out many retail chains, home improvement retailer Home Depot grew this year. As consumers stuck at home have more time than ever for home-improvement projects, the firm saw summer sales up 42%, outperforming close competitor Lowe’s.
The performance of these non-tech stocks during the COVID era reveals the limits of digitization. While companies do find success operating through virtual means, a combination of older technologies with modern-day innovation may be the optimal option.
But can companies like Carrier achieve long-term growth? It depends. While Carrier is well-positioned in the HVAC industry, it faces financial challenges. When it broke off from parent company United Technologies this spring, it took on an above-average amount of debt. At the same time, the firm can potentially pay off its liabilities using cash generated through pandemic operations.
Ultimately, adaptability drives long-term sustainability. Regeneron is developing an antibody treatment for the virus, and Home Depot is expanding e-commerce offerings while still featuring in-store options for customers who prefer the tactile experience. Across the board, there is a theme of meeting demand that goes beyond just present need.
Similarly, Carrier is adapting while maintaining its core product. This two-pronged approach is crucial. Though Carrier recognizes the importance of innovation, it also realizes the long-term potential of being a player in the HVAC market. With the increasing effects of climate change, demand for HVAC systems is expected to increase significantly in the coming decades. It seems that non-tech stocks––as valuable members of the S&P 500––will remain an effective predictor of economic growth for the foreseeable future.