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Stock market crash, what stock market crash?

When the stock market crashed in March, pretty much no sector escaped unscathed. But since then, some companies have continued to struggle while others’ share prices have risen past pre-Covid-19 levels.

What trends can we identify here and how can we protect ourselves against a future stock market crash?

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Sectors thriving through the stock market crash

Any sector that is cyclical and dependent on a strong economy has performed poorly in the stock market crash. Travel, tourism, construction, oil, property, retail, banking, and leisure have all been hit hard.

Conversely, utilities might not provide much growth, but they come into their own in a stock market crash. Their dividends are dependable, as everyone needs water and electricity, so earnings are stable no matter how the economy is performing. Pennon Group, for example, hit its all-time high this year.

Healthcare and consumer durables are both traditionally defensive and have weathered the storm well. AstraZeneca is now the biggest stock by market cap in the UK. Hikma Pharmaceuticals has stormed into the FTSE 100.

Consumer durables like Unilever and Reckitt Benckiser have proven resilient partially because they sell products like soap or hand sanitizers, but also because the range of products they sell tend to be in demand regardless of the state of the economy.

Miners of precious metals have also seen their share price climb as investors pile into gold and silver. There is usually a strong negative correlation between a stock market crash and the increase in demand for gold so precious metals can act as a good hedge in your portfolio. Centamin and Fresnillo have risen 60% and 90% respectively since the turn of the year.

The star performing sector?

Arguably that belongs to technology. While not traditionally defensive, many tech shares have prospered. An astonishing fact is that the four biggest US tech stocks now have the same net worth as Japan, the world’s third largest economy.

Closer to home, video gaming stocks have been on a charge as lockdown has increased use and driven revenues higher. Codemasters and Keywords Studios are beneficiaries here.

But there are strong performers everywhere you look in technology. Ocado (online shopping tech), Avast (cybersecurity), Kainos (IT solutions). My only worry is perhaps prices have been driven too high into a bubble scenario like we could be seeing with Tesla stock in the US.

How to protect yourself

How do you avoid a future stock market crash? Unfortunately, no one can consistently predict the future. All you can do is diversify your portfolio to protect yourself as best as possible.

Most big investment sites will analyse your investments for you. The advice here is not to avoid cyclical stocks. When the economy rises, they might well be your star performers. But try to have a balanced portfolio across all sectors but also across stocks, bonds, commodities, and property.

Geographical diversification is also key. The FTSE 100 market is over 20% down from its 12-month high, but the NASDAQ is at an all time high.

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David Barnes owns shares in Unilever. The Motley Fool UK owns shares of and has recommended Tesla. The Motley Fool UK has recommended Fresnillo, Hikma Pharmaceuticals, Kainos, Keywords Studios, Pennon Group, and Unilever. 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.

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