I reckon we could be in for more volatility in the stock market before the effects of the coronavirus pandemic are over. However, there’s still a big opportunity for investors in the FTSE 100.
Last week, lots of share prices were shooting up. But it won’t surprise many people to see stocks falling again. Indeed, bear markets are known for their rapid and sudden reversals to the upside, and we may have just witnessed one of those.
The economic damage could be extensive
It seems inconceivable that companies will be able to just carry on as normal when the pandemic passes. I’m expecting firms in many sectors to hurt badly for some time. We haven’t seen a wave of dividend cuts for nothing. Indeed, I’ve got my crash helmet on waiting for months of diabolical trading figures from companies.
Overall, my guess is this will end up being a mighty hole for world economies to crawl out of. My best guess is that the general market indices and the share prices of many individual firms will plunge lower again.
But not all companies will be as badly affected as others. Some sectors such as travel and leisure contain firms whose entire revenue has stalled. The longer that situation continues, the harder it will be for many of the firms affected to recover afterwards.
And other sectors have barely noticed any difference. I’m thinking of fast-moving consumer goods like tobacco, alcohol, and everyday necessities, such as soap and food products. Essential service providers have been trading well through the crisis too, such as supermarkets and others.
Your new ISA allowance arrived!
While we’ve been focusing on the pandemic and the carnage and opportunity in the stock market, the financial year turned over and landed us with a fresh £20,000 ISA allowance on 6 April. Now’s the time to spend it wisely on shares.
And the good news is we can afford to be particularly discerning in the current market environment. Now is the time to insist on only the best companies ending up in our portfolios. I’d target companies that run businesses with defensive, cash-generating characteristics rather than more cyclical outfits that general macroeconomic downturns can affect.
In the FTSE 100, for example, I like stocks such as Unilever, AstraZeneca, GlaxoSmithKline, British American Tobacco, Diageo, Reckitt Benckiser, National Grid, Smith & Nephew, and SSE. I know some of those names have seen a strong rebound over recent days, but, as I said, there could be further general market weakness ahead.
I’d put those firms on a watch list and aim to buy some of the shares on dips, down-days, and periods of weakness. And it’s an equally valid proposition to invest in the market itself. You can do that by adding an FTSE 100 tracker fund to your ISA.
Kevin Godbold has no position in any share mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline and Unilever. The Motley Fool UK has recommended AstraZeneca and Diageo. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.