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News

2021: The year in review from the perspective of a CFD broker

Financial markets have continued to experience an almost unprecedented amount of volatility this year, amidst the ongoing Covid-19 pandemic. As 2021 draws to a close, it’s worth reviewing the stock market performance of some notable industries throughout the year, to see how they got on.

Pharmaceutical stocks continued to perform well

This year, pharmaceutical companies have picked up where they left off in 2020, delivering very solid performances. With the mass distribution of Covid-19 vaccines around the world, companies producing these performed exceptionally well this calendar year. For example, the Year-To-Date (YTD) return for Moderna was 164.55%, while Pfizer’s YTD return stood at 65.77%. What’s more, this growth wasn’t just limited to those companies’ producing vaccines. Other firms, such as West Pharmaceutical Services, which delivers Covid-19 vaccines safely and securely in containers, also enjoyed a strong 2021 (54.96% YTD return).

Strong showing from cybersecurity stocks

2021 was a good year for cybersecurity companies. The world continued to feel the effects of the Covid-19 pandemic, with many businesses experiencing difficulties due to the hybrid working structure, where employees need protecting whether they are at home or in the office. Companies implemented measures to ensure their increasingly distributed operations were safe and secure, to protect against the potential of a cyberattack. Further to this, numerous high-profile cyberattacks took place this year, including the Colonial Pipeline ransomware attack. Attacks like this one emphasised the need for companies to prioritise their security systems. As a result of this, the YTD return for companies in the cybersecurity industry was very strong. For example, Fortinet, a provider of cybersecurity related hardware, delivered a YTD return of over 120%, while Palo Alto Networks, an enterprise cybersecurity platform, YTD return was just under 50%.

Energy firms delivered significant growth

Rising gas and oil prices have resulted in 2021 being a good year for energy companies. These increases in price can largely be attributed to supply and demand dynamics. Firstly, oil and gas became in heavy demand again as soon as economies around the world began to reopen following worldwide lockdowns, as countries required the commodities for manufacturing, travel, and other purposes. Secondly, extreme weather events, most notably Hurricane Ida, which caused significant disruption to oil and gas operations in the Gulf of Mexico in late August and early September, also caused the prices of these two natural resources to rise. Finally, as developing countries, such as Brazil and India, require more and more energy, the demand for oil and gas increases, while the amount available takes a hit, driving the price of the commodities up. Looking specifically at companies’ operating in this sector, Devon Energy (142%), Marathon Oil (112.79%) and Diamondback Energy (104.79%) all saw their YTD return exceed 100%. All in all, the increased demand and lack of supply of oil and gas has led to energy companies performing well in 2021.

Work from home stocks took a beating

Work from home stocks took a major hit this year. Instead of investing in work from home shares, investors chose to put money into re-opening stocks at the expense of work from home stocks. As lockdowns around the world lifted, companies started to open their doors to employees once again. With members of staff now back in the office, there was a reduction in the reliance on work from home tools, such as Zoom. In fact, Zoom’s YTD return was -41.31%. As well as this, with facilities such as leisure centres and gyms reopening, people had less of a desire to have exercise equipment and machines at home. This caused the YTD return of Peloton, the exercise equipment provider, to decrease by a staggering -74.49%.

Poor year for travel companies

As was the case in 2020, 2021 was another poor year for travel companies. Travel restrictions still being in place throughout the majority of the calendar year hit the industry hard. So too did the numerous – and costly – testing requirements needed to travel from one country to another, which deterred people from going abroad. As such, the share prices of travel firms took a hit. Airlines such as Southwest Airlines suffered (-15.55% YTD return), while the same can be said of resort developers and operators like Wynn Resorts (-28.40% YTD return) and Las Vegas Sands (-42.70% YTD return). Travel restrictions also impacted the cruising industry, with some countries implementing measures which prevented ships from certain destinations from docking at their ports. Both Carnival and Norwegian, international cruises lines, delivered poor YTD returns, coming in at -12.74% and -18.44% respectively. While the travel industry has shown glimpses of recovery in the latter months of the year, the spread of the Omicron variant has the potential to destabilise the entire industry once again.

*Figures are accurate as of 22nd December 2021

**All of these stocks are available to trade on AvaTrade

FInance, News

Stock market analysts discuss how to invest during a recession

The economic crash due to Covid-19 is a unique event, however stock market experts have taken learnings from previous recessions to predict the stocks that may increase in value during this time.

IG Markets, Europe’s largest online derivatives trading provider, has taken learnings from previous recessions, using historical data and online tools such as Decade of Trade, which visualises world stock market trends over the 10 years since the 2008 crash, to provide predictions about the areas of the stock market to watch during an inevitable recession.

Stocks to watch during a recession

Under expansionary circumstances, stocks that have strong growth prospects such as healthcare and consumer staple sectors, for the future typically command lofty valuations and produce high returns, as investors bank on the company’s ability to generate more income as time progresses. This phenomenon typically results in high price to earnings (P/E) ratios like those currently present in some of the market-leading tech stocks.

In the event of an economic downturn, however, these profit-hopeful stocks are often discarded as investors align their income assumptions with slowing growth and lower consumer spending.

On the other hand, stocks with stable – but often more modest – income generation tend to be more insulated from dramatic stock shocks that frequently accompany recessionary periods. These stocks are known as “defensives” and, broadly speaking, include the utility, healthcare and consumer staple sectors. Given their profitability profiles, they become an important collection of stocks to keep an eye on when the broader market encounters a rough patch.

Consequently, a portfolio comprised entirely of equities is remarkably vulnerable in times of recession, particularly at the onset when losses are often steepest. With that in mind, it may prove beneficial to look outside of the equity market for some of the best recession-proof investments.

Gold can be an investment during a recession

XAU/USD is widely regarded as a safe haven asset for its stable store of value and tangibility. Further still, gold can act as an inflationary hedge, making it an attractive investment in times of recession and in periods of lower interest rates when inflation may threaten to take hold. Gold has demonstrated an almost innate ability to retain its value during contractionary periods, thus making it an attractive investment in times of uncertainty.

The US dollar: an attractive currency during recessions

Sharing similarities with gold, the US Dollar also boasts safe haven attributes. Due to its role as the world’s reserve currency and the backing of the world’s largest economy, the US Dollar is both incredibly liquid and sought after. Issued by the Federal Reserve, the Greenback is arguably the safest currency in the world and has become a quasi-currency of exchange in many nations where domestic currencies have had their purchasing power fall, due to inflationary pressures or other economic woes.

Consequently, holding US Dollars during periods of uncertainty or turmoil is often viewed as an attractive alternative to other assets. Evidenced in the Great Financial Crisis when the United States dragged the rest of the world into a global recession, the US Dollar surged almost 25% during 2007 to 2009 even as the Federal Reserve lowered interest rates to the floor.

The Dollar’s strength was largely owed to the fact that the Federal Reserve possessed ample liquidity and the US economy was soon in a position to recover while others were mired in recessions – some of which have never fully recovered.

Joshua Warner, Anaylst at IG Markets, said: “While there is a strong argument that a global health pandemic like Covid-19 has been on the radar of governments and institutions for decades, the lack of preparedness of most governments and businesses shows how unprecedented the current situation is.

“It is almost guaranteed that the UK will enter a recession in the coming months. The Bank of England (BoE) has said it is likely to be the sharpest one on record, while Chancellor Rishi Sunak has warned it will be a ‘severe recession the likes of which we haven’t seen before’.”

Peter Hanks, Junior Analyst at Daily FX.com, said: “With the benefit of hindsight and the lessons of the three most recent recessions, it can be argued the best recession investments are not stocks at all, but rather assets that retain their value even as growth slips. Therefore, if equity exposure is a must-have in your portfolio, the US Dollar and gold should also be given consideration – particularly for the risk-averse investor or one who suspects an impending recession.”

To learn more about the stock market over the last 10 years to understand future trends, please visit: https://www.ig.com/uk/special-reports/decade-of-trade

 

FInance

How clued up are you on the FTSE 100?

Brits incorrectly believe household favourites Tesco and Sainsburys are in the top 10 biggest companies of the FTSE 100, according to a new poll by IG Markets.

The trader polled 2,000 adults, alongside the launch of its Decade of Trade tool, to discover how clued up the general population are on the FTSE 100. The results show that as a nation we are fairly savvy when it comes to our knowledge of the stock market and over two-thirds (77%) are knowledgeable on the definition of shares.

Online trading platform, IG Markets, created the Decade of Trade tool to help Brits gain an understanding of the FTSE 100 and to allow traders to view not only how companies in the markets are performing now, but how they have performed over the last ten years. The tool covers twelve world markets including the FTSE 100, DAX40, ASX200 and HANG SENG.

When asked to name which companies are in the top ten of the FTSE 100 from a list, Brits identified eight out of ten businesses correctly. The mistakes came from thinking the supermarkets had a bigger presence than they do, with Brits believing Tesco (23rd in the FTSE 100) and Sainsbury’s (100th in the FTSE 100) to be in the top 10 market share.

Brits failed to identify beverage company, Diageo, whose brands include Smirnoff, Baileys and Guinness and mining corporation, Rio Tinto, as top 10 FTSE 100 companies.

Brits were also tested on their knowledge of the FTSE’s sector market share. The results showed there is a perception that Oil and Gas, Chemicals and Banks and Persona are the three largest sectors of the FTSE 100 when it is actually Oil and Gas, Banks and Persona and Household Goods.

Respondents were also asked what they perceive to have the biggest impact on the FTSE 100, and just over a quarter (27%) thought the Brexit referendum would have the biggest impact on the stock market.

Top five things Brits think have impacted the FTSE 100

  • Interest rates (43%)
  • Economic releases about earnings reports (35%)
  • The Bank of England quarterly inflation report (27%)
  • Brexit referendum (27%)
  • Eurozone politics (26%)

Almost four in ten (39%) correctly thought all of the above factors have an impact on the FTSE 100.

To view the Decade of Trade tool, click here: https://www.ig.com/uk/special-reports/decade-of-trade