The Motley Fool

Recession Investing: can Rishi Sunak’s jobs support scheme help avoid another stock market crash? Here’s what I think

Image source: Getty Images

Chancellor Rishi Sunak’s Winter Economy Plan may have brought the UK economy back from the cliff-edge. The UK economy faced the very real possibility of tumbling back into recession as the government’s furlough scheme ends in around a month’s time. But it has been replaced by a new jobs support scheme, hopefully in time. Income support for the self-employed has been extended too. 

So far though, the markets aren’t impressed. At Thursday’s close (the day the plan was announced), the FTSE 100 index was down by 1.2% and it’s weak as I write on Friday afternoon too. It’s possible that investors may feel more confident by next week, when the full import of the scheme is absorbed. But this will be so only if they are positive on it. As I said, the scheme has received a tepid reception and experts expect that it will not stave off unemployment, only slow it down. 

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Recession avoided but slowdown imminent

Unemployment numbers have already been rising. For the May-July period, the UK’s unemployment rate was 4.1%, slightly higher than that during the year before. And this is despite the furlough scheme that helped during the lockdown and recession. With less government support available now, I think we should brace for even higher unemployment. This, in turn, will impact the remainder of the economy through lower consumer spending and lower economy-wide savings and investments. 

Based on this, I think it safe to assume that the FTSE 100 index will show at least sideways movements for the remainder of 2020. At worst there could even be a stock market crash, considering how uncertain the present situation is. In fact, I think there are at least three triggers that could cause one, even with the jobs support scheme. 

Risk and outlook to drive FTSE 100 investments

I think how we invest now is based on two things. One, our risk appetite and two, our outlook. For investors with a high risk appetite, battered stocks can make good investments. Some of the biggest FTSE 100 companies including financials, travel and hospitality firms have been beaten down by the recession and will remain weak in the near term. But if our medium-to-long-term outlook is still positive, we can still find value in them.

However, if sharp market movements aren’t our cup of tea, I think safer stocks are a better option. Defensives tend to perform quite well in recessionary conditions and indeed many FTSE 100 healthcare and consumer staple goods are testament to that. What’s even better is that they have good long-term prospects as well. 

It is worth bearing in mind, though, that when the good times start rolling, their share price increases may not be as steep as those of some of their peers. Investors in cyclicals, including sectors that are downbeat right now, on the other hand could see a sharp upturn in fortunes. Still, the downside to defensives is limited. Given the deep uncertainty we are now facing, I like the idea of holding a mix of both kinds of stocks, with the ratio entirely dependent on an individual investor’s own comfort levels. 

A Top Share with Enormous Growth Potential

Savvy investors like you won’t want to miss out on this timely opportunity…

Here’s your chance to discover exactly what has got our Motley Fool UK analyst all fired up about this ‘pure-play’ online business (yes, despite the pandemic!).

Not only does this company enjoy a dominant market-leading position…

But its capital-light, highly scalable business model has previously helped it deliver consistently high sales, astounding near-70% margins, and rising shareholder returns … in fact, in 2019 it returned a whopping £150m+ to shareholders in dividends and buybacks!

And here’s the really exciting part…

While COVID-19 may have thrown the company a curveball, management have acted swiftly to ensure this business is as well placed as it can be to ride out the current period of uncertainty… in fact, our analyst believes it should come roaring back to life, just as soon as normal economic activity resumes.

That’s why we think now could be the perfect time for you to start building your own stake in this exceptional business – especially given the shares look to be trading on a fairly undemanding valuation for the year to March 2021.

Click here to claim your copy of this special report now — and we’ll tell you the name of this Top Growth Share… free of charge!

Views expressed 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.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.