It wasn’t a great week for the major world stock markets as all returned negative results.
This was mainly due to the fact the US government has still yet to agree a new stimulus package. What does this stimulus package entail? Well, it will provide direct payments to US citizens, particularly the unemployed as well as loans to businesses and aid to airlines.
Many investors hope the new stimulus package will give a much needed boost to the US economy and as it’s the biggest economy in the world this should have a knock on effect for the rest of the world.
Sticking with the US, many US companies have been releasing their latest quarterly earnings. The US is different to the UK in making their public companies report quarterly. In the UK the requirement is to report half yearly.
One of the big announcements came from Netflix who reported weaker than expected earnings. Also whilst they managed to add 2.2 million new subscribers, this was below the 2.5 million it promised to deliver and well below the 3.5 million analysts were expecting.
Netflix stock fell 6% on the news.
There is a key investing lesson here. You see, when it comes to growth companies like Netflix, investor will buy into a company and therefore raise the share price on the expectation of greater future growth in revenue and profits.
If the company misses the targets investors set or more importantly underwhelm in their future projections, there will usually be a sharp sell off as investors get out quick.
This can even happen if a company reports a strong set of results.
There’s a saying in investing that goes…… “buy the rumour, sell the news”. This basically means investors buy shares in a company betting on a certain set of results. That’s why share prices rise before the results are achieved.
When the results are achieved, unless they are way better than expected with more to come. Investors will bank their profit and move on to the next company.
There was more good news coming out of China. The economy grew nearly 5% last quarter compared to the same time last year. Meaning it has now recovered all of its losses from lockdown.
As covered previously. China is predicted to be the only major economy in the world to end up growing this year.
Why so successful? There are two major reasons here.
Firstly, China and other south east Asian countries have just coped so much better with Coronavirus. Having experienced the SARS outbreak back in 2003 they were just so much more prepared for this latest pandemic.
More testing capacity, tighter lockdowns and rightly or wrongly they benefit from super surveillance of their population so can monitor movement of people and the self-isolation process much better.
The other reason is the type of economy China has. It is much more focused on industrial output compared to the US and Europe. The US and Europe’s economies are much more service based which is the area most impacted by Coronavirus.
This is why when looking at countries to invest in, you need to look at what type of sectors make up most of the their economy. What are the projections going forward for those sectors?
Better still, remain diversified across a range of countries, sectors and individual companies.
Don’t have all your eggs in one basket!
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Stock market linked investments and any income from them, can fall as well as rise and is not guaranteed. Any figures quoted are for illustrative purposes and should not be taken as a forecast or guarantee. Past performance should not be seen as an indication of future returns and clients may get back less than they have invested.