Global stock markets took a hit last week as the effects of the coronavirus pandemic continued to weigh on equities. Stock markets recorded their biggest decline in more than a year. The Nasdaq index which represents a composite of listed tech firms, declined about 7.5% last week following worrying trends surrounding Netflix subscriber growth. The trend is an indication that investors are becoming more skeptical about technology stocks which soared to record highs since the onset of the pandemic.
However, as central banks across the globe start to implement stricter monetary policies, interest rate hikes and inflationary pressures are hitting company profits hard. This combined with overall uncertainty and lingering logistics issues forms the basis of the current decline. Over in the UK, the FTSE 100 recorded its largest decline in eight weeks; mainly fuelled by lower retail sales as a result of the pandemic. According to an online market research firm, Trading Economics “British retail sales slumped 3.7% in December, a far bigger hit than the 0.6% fall forecast by markets and the biggest decrease since last January.”
But it’s not time to panic. For the strategic investor, now is the perfect time to capitalize on some of the blue-chip stocks which before now may have been unattainable. For example; Barclays’ analysts lowered their price target on Netflix by 37% to $425 from $675 a share. Similarly, at-home fitness company Peloton’s share price is a little above $27 coming from a high of $160 a share. Now may be the time to forecast and take calculated risks. It may also be important to note that these are unprecedented circumstances.
Therefore, while the pandemic may linger for a while longer, macroeconomic conditions are ever-changing. This is the perfect example of what financial advisors have been saying for decades – markets move in both directions depending on the circumstances. Already, organizations like the IMF and the World Bank are predicting earlier recovery for some markets. For those who are in it for the long haul, holding on to a stock that may be losing value or buying up stocks that have lost value could start to pay dividends sooner than envisioned.
At the same time, since stocks are underperforming globally, it may be helpful to pay closer attention to the fundamentals of a company. This exercise often helps investors to decide whether a stock is losing value because of unforeseen shocks, mismanagement, or just general scepticism. Looking at the financials may also help the investor to decide whether the company might be able to withstand future shocks.
The reality is that many of the stocks which have lost value over the past few weeks, continue to display strong financials and growth prospects. This is a signal that the market decline being experienced now, as we’ve seen in the past is temporary and will likely dissipate soon. When the dust settles, investors should ensure they have strengthened their portfolios with a few coveted stocks which are hovering well below their market value right now.