If you regularly buy individual stocks or straight ETFs on stock indices, it might be worth taking a break for a few months. It's not for nothing they say that when the markets are bleeding, that's the best time to buy. However, seeing your money bleed is never pleasant. Risks are pouring into global markets from all sides, and better opportunities for investing in equities may yet come. This begs the question, where to go with the spare cash for the rest of the year?
The answer is not simple, the global markets are turning into a minefield and everyone should carefully consider which direction to take. At the time of writing (September 2022), headlines and slogans associated with the energy crisis are filling the pages of newspapers, as well as election slogans. Not surprisingly, the energy crisis is bearing down on Europe, triggered in particular by the shutdown of the NordStream 1 pipeline, which has also spooked the gas and electricity markets. For both, we have seen attacks on record highs. Winter is approaching, Russia has us in its grip and the debate on energy price capping is resonating through the European community.
Whatever the outcome of this situation, we are likely to pay significantly more for energy over the winter. This money will then be missing in consumption, for which the current level of interest rates is already partly restrictive. These are likely to continue to rise if we look at the rate of inflation in the major economies. Last week the ECB raised interest rates significantly and next week we expect the same move from the US counterpart. Global corporate earnings could take a big hit and we could see a lot of reduced outlooks for future earnings as well as more layoffs. If this paragraph hasn't put you off, let's take a look at some of the sectors and companies that could prosper even in such uncertain times.
Investors may now be wise to avoid cyclical stocks - that is, companies whose financial performance is significantly dependent on the economic cycle. Companies like Netflix or Starbucks may be under pressure as a result, as they will be one of the first places consumers save in times of belt-tightening. The same can be said for luxury goods companies.
So it may now be more interesting to seek out so-called defensive stocks - that is, stocks of companies that generally outperform the market even in times of uncertainty. But that doesn't mean that these stocks can't fall in the event of a market washout. Defensive stocks include, for example, mobile phone operators. For example, if you look at a chart of T-Mobile US (ticker TMUS), you might be shocked to see that this stock is trading near an all-time high. Thus, T-Mobile US stock has completely ignored the indices this year, having gained nearly 30% since the beginning of the year (see chart below).
Other examples of defensive stocks include companies whose business revolves around electricity or water - things that are hard to reduce consumption of. Counter-cyclical stocks can also be an interesting choice - by this we mean companies that, in contrast, increase their revenues in times of belt-tightening. There aren't many such companies, but one example is the low-priced goods chain Dollar Tree.
However, if you are afraid to buy stocks in such uncertain times, it may be best to take the fate of your money into your own hands and manage it actively. The current high volatility across the markets offers interesting trading opportunities for speculators. So if you are an investor who is willing to go "against the tide", there are many instruments for you to "short" - that is, speculate on falling markets.
Shorting stocks has paid off handsomely so far in 2022. Among the worst stocks in the S&P 500 index was the aforementioned Netflix, which wrote off over 60% of its capitalization in the first eight months of the year. Other famous companies such as Meta Platforms and PayPal also lost over half of their value. The summer rally in the stock markets, however, also favoured growth speculators. PayPal's chart below shows that high volatility favored traders in both directions during the year.
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