Lloyds (LSE:LLOY) has experienced a challenging few years and in the current economic circumstances, it seems challenges abound. The Lloyds share price is down 54% year-to-date and the UK’s economic outlook is not great. If ordinary citizens cannot pay their debts, then the banks will suffer. The same goes for businesses. With unemployment rates rising at an unprecedented frequency and businesses facing an uncertain future, the banks are in a weak position.
Lloyds share price stutters
Lloyds has a price-to-earnings ratio of 8, earnings per share are 3.5p and it cancelled its dividend at the request of the central bank. It also has a 94% debt ratio, which seems perilously high. The FTSE 100 bank’s first-quarter results showed a colossal 95% drop in profits. And it expects loan losses of £1.4bn in the coming quarter, a five-fold increase on the same quarter in 2019. Over the past two months, the Lloyds share price has been hovering around 30p, frequently falling lower.
Lloyds is not alone though. Its peers are also forecasting various levels of GDP decline. The figures are highly speculative and there is concern reality could be worse. The government is printing money to bail out businesses and keep the economy afloat. It has extended the furlough scheme for a further four months to help people pay their bills and stay safe at home. While this is welcome, it does not bode well for the future. Keeping the economy afloat is one thing, but how quickly it can recover is unknown.
The Great Depression 2?
Britain has now entered a recession and many experts believe it could easily rival the Great Depression of the 1930s. Meanwhile, Jeff Bezos, the founder and owner of Amazon, is set to become the world’s first trillionaire. I think it is plain to see wealth is not distributed evenly. But we are each in charge of our own financial destiny and nowadays, the stock market is accessible to anyone.
With a Stocks and Shares ISA, you can invest in individual stocks, bonds, index funds, investment trusts or commodities. Best of all, you can start investing from as little as £25 a month.
A market crash and recession can be a nerve-wracking time to start investing, but many fortunes have been made by doing just that. In the years following the great crash of 1929, J Paul Getty began investing in the stock market. He went on to build an oil empire and at one point was titled ‘the richest living American’. Through his value investing strategy, the subsequent generations of his family continue to benefit from his stock market investments to this day.
Warren Buffett is another billionaire investor who follows a value investing strategy, and it has served him well.
I would avoid the Lloyds share price for now, but I think the FTSE 100 holds a great number of excellent companies that will stand the test of time. These stocks will not only survive, but thrive and once normality returns, a well-structured Stocks and Shares ISA could swell with wealth.
Kirsteen has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group. 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.