National Savings & Investments is cutting the rate on some of its accounts to just 0.1%. That’s a reflection of very low interest rates. Many savings accounts from high street banks are little better. However, low interest rates do benefit the stock market and debt-heavy companies.
With so much money about and quantitative easing boosting asset prices, stock markets – until the Covid pandemic – were performing strongly. That’s likely to be the case again once a vaccine is rolled out. Consumers will go out shopping and firms will be able to operate more normally, meaning there will (eventually) be less unemployment and more investment.
While I don’t have a specific prediction for when the FTSE 100 might get back to where it was at the start of this year, I do have confidence that once the worst of the virus is behind us, the stock market should do very well. This is why I’m remaining invested in shares and not keeping too much cash on the sidelines. I’d rather earn passive income from dividends than let inflation erode the value of my hard-earned money.
Industries that could outperform in a recovery
So where am I investing? In areas I think could ride the recovery wave.
The banks, for example, could outperform when economic confidence returns. Their share prices can now grow from a lower starting point, making it easier to make quick gains. We’ve partially seen this already since the first positive vaccine announcement. But there’s further to go, in my view.
Airlines are another area for optimistic investors to consider. Any recovery should see their share prices rise further. Pre-covid, the airline sector was tipped for huge growth, despite increasing environmental awareness. That picture has changed now, but I expect if a vaccine rollout is successful, far better times could be around the corner. easyJet and International Consolidated Airlines would be my picks here.
Looking for stock market value
I think as the stock market recovery takes hold, we’re seeing value become a key theme. Cheap shares are bouncing back far better than the shares that did well because of the coronavirus (in fact, those are sometimes going into reverse).
For this reason, I’d avoid shares like Ocado and the supermarkets. Gold miners aren’t high on my list of future investments either. I want to target shares that can grow their dividends quickly and can take market share in their industry. I think that’s what the bigger airlines – backed by their shareholders – will be able to do as the pandemic slows.
I’m optimistic that investors like me are far better off putting their money into the admittedly uncertain world of the stock market, rather than the certainty of a 0.1% return with NS&I. In reality, after inflation, that’s a loss!
