Investors and stock traders often deal with volatile situations in the market. As a result, it is important to develop backup plans. While free stock trading helps traders get started, they need to develop advanced strategies to deal with such contingencies.
The volatility of the stock market has been felt not just in the performance of stocks, but also in the predictions that experts make. While some are doomsday predictions, others are more positive. But it can’t be ignored that the predictions of gloom are more dominant. How reliable are the predictions of a market crash?
The early part of 2020 saw the most recent market crash in history which was brought about by the Covid-19 pandemic. The lowest point was March 23 which was followed by a record bounce back for the stock market. That rise was brought about by the optimism of investors which most analysts believed was unfounded. So, a crash cannot be totally ruled out.
A Statistic That’s Hard to Ignore
Motley Fool’s Sean Williams points out one statistic – the weekly US ETF and mutual fund cash flows as reported by Refinitiv Lipper. It reports that on the 21st of October 2020 investors redeemed fund assets worth $7.6 billion. Fund outflows have been happening consecutively for 11 weeks. Excluding ETFs, this has been the 26th consecutive week where we are seeing conventional fund outflows. As far as domestic equity funds are concerned, this is the 19th week where we’re seeing ongoing outflows. Even though the stock market is close to where its all-time high has been, Williams believes this data indicates investors are currently not too keen on equities. This also comes at a time when the US Treasury yields are heading close to their record lows.
Succeeding When the Going Gets Tough
There are some industries that could thrive despite an extended lockdown and economic recession. Industries offering such services may keep seeing demand. Among these essential industries are healthcare, discount retailers, food, etc.
For instance, there were three healthcare stocks among the top ten performers in the S&P 500 during the 2008 recession, as per YCharts.
Biotech company Vertex Pharmaceuticals ($VRTX) reported a 1-year total return of 30.8% in 2008. At the end of trading on November 5, 2020 the stock was up by 2.04% and priced at 219.48 USD.
Drug manufacturer Amgen ($AMGN) returned 24.3% during the 2008 recession. It is currently priced at 231.97 USD and is up 0.71% as of November 5.
Medical devices company Edwards Lifesciences Corp. ($EW) returned 19.5% back in 2008. Currently priced at 77.55 USD, the stock has grown by 2.08%.
In the discount retail sector,
Dollar Tree ($DLTR) was the company leading the top 10 performers of the S&P 500 during the 2008 recession. It managed a 1-year total return of 60.8%. It currently has a P/E ratio of 25.49 and a market cap of 22.568 billion. It’s currently down by 0.16% at the end of trading on November 5, 2020. Earnings are coming up on December 1.
Walmart Inc. ($WMT) reported a 1-year total return of 20.0% back in 2008. The stock has a 22.63 P/E ratio and boasts a dividend yield of 1.52%. It enjoys a market cap of 406.558 billion. Its earnings are coming up soon. As of November 5, the stock has 1.06% and is priced at 143.47 USD.
As for the food sector,
Restaurant chain McDonald's Corp. ($MCD) has a P/E ratio of 34.07, with a market cap of 160.957 billion. The stock has risen 0.67% as of November 5, 2020 and is priced at 216.31 USD. The company’s earnings reporting is coming up soon.
Darden Restaurants, Inc. ($DRI) has a market cap of 13.218 billion and even offers a dividend yield of 2.44%. As of November 5, the stock is up 5.10% and is priced at 101.52 USD.
It is important to prepare for a potential crash by selecting the right kind of stocks that could do well despite a return of the Covid-19 lockdown.
With the right trading software, you are in a much better position to make informed decisions.
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