Far apart as they may seem, there’s a big similarity between FTSE 100 British bank Lloyds Bank (LSE: LLOY) and FTSE 250 multi-national cinema chain Cineworld (LSE: CINE). Both have been badly affected by the corona-crisis since last year.
But both of them have also seen a bounce since the stock market rally that started in November. It would appear to then be good news that the FTSE 100 index continues to make gains. It’s now back to the pre-stock market crash levels of early March.
But will it continue to be good for both LLOY and CINE?
I think this question is important because there are big macro drivers at work. These can affect the shares, even if the stock market rally continues.
#1. UK national lockdown
The UK’s currently in lockdown because of a surge in coroanvirus cases. The threat of the new strain of coronavirus is an added issue. The mutated virus is restricted largely to this geography, which disproportionately impacts companies with the UK as its main market. One of them is LLOY.
The longer the UK stays in lockdown, the more the economy suffers. This increases the chances of LLOY acquiring more bad debts as an increased number of establishments turn bankrupt.
In contrast, CINE’s revenues depend in big part on the US market. While it’s entirely possible that the mutated virus will grow fast in other geographies too, so far that has been limited. This, I reckon, is a relief for investors in the FTSE 250 stock, which continues to rally despite a national lockdown in the UK. This isn’t something we can say for LLOY.
#2. Brexit deal’s impact on LLOY and CINE
The LLOY share price is also impacted by the Brexit deal’s little headway on the financial services sector. This explains investor nervousness about the stock, which has fallen since the deal was announced.
Here too, the impact on CINE is relatively limited, because its big revenue sources are outside of the EU countries.
#3. Coronavirus vaccine
However, there’s still a lot of hope across stocks, as vaccinations start. If the virus is indeed under control in the next few months, both the Lloyds share price and the Cineworld share price should continue to benefit.
Neither of the two will be out of the woods by then, though.
Both were facing issues of their own even earlier, and the corona-crisis has only exacerbated them. However, I think the important thing to remember is that investors put their money on these stocks hoping for better returns in the future, even if the present is shaky.
With the overall situation still up in the air, I think the best shot is to buy those FTSE 100 or FTSE 250 shares whose prospects look brightest based on what we know right now.
I’m looking closely at the Cineworld story for now, while letting the Lloyds Bank one play out for a little longer.
