Markets retreat after Fed guidance, Next fights back, and tough times for Trainline

“It’s a miserable day on the markets as investors reacted coldly to the Federal Reserve’s latest comments,” says Russ Mould, Investment Director at AJ Bell.

“The lack of new economic support measures and simply to have guidance for rates to remain low for longer left markets disappointed.

“The FTSE 100 fell 0.9% to 6,026, Germany’s DAX index declined 1.3% and Hong Kong’s Hang Seng index dropped 1.6%.

“On the UK market, cyclical stocks went out the window with a big sell-off in miners and financials, and investors instead shifting their money to healthcare companies.

HSBC was the biggest faller, down 3%, with many other banking stocks also weak as investors speculated that the US strategy of low rates for a lengthy period would extend to other countries.

“Banks rely on higher rates to make higher profits, so the idea that this tailwind might not happen for some time served to further dampen investor enthusiasm for the sector.”

Next

“You’ve got to hand it to Next. Even in a world where businesses are struggling and consumers face big uncertainties over their personal and financial health which arguably puts a cloud over their willingness to spend, Next is still managing to keep its head above water.

“Increased profit guidance, a reduction in debt and a general fighting spirit all suggest Next is finding a clear path through the murky environment.

“The business is lucky to have already established a strong online presence pre-Covid so it has been able to capitalise on this year’s accelerated shift from the high street to the web in terms of how people buy goods and services.

“Interestingly it has seen no change in bad debt trends, which one might have expected to shoot up amid growing unemployment. Next’s management has always taken a cautious view and is not being complacent, which explains why it is making provisions now for an increase in bad debts just in case.

“That summarises Next to a tee. Its ability to keep making money through the crisis should be cause for celebration, but Next would never party too hard.”

Trainline

“Covid-19 has seen further migration of train ticket sales online which, at the margin, is clearly of benefit to rail booking site Trainline.

“However, this impact is a drop in the ocean compared with cataclysmic impact the pandemic has had on overall demand for rail journeys.

“Business journeys have dried up, people are generally reluctant to travel on public transport due to the infection risks, and operators can’t sell that many tickets even if they wanted to due to distancing requirements.

“Most observers do not expect a full recovery in demand for several years, if at all, and therefore the only route to growth for Trainline is to gain a greater share of the number of tickets sold.

“However, it feels like there is a natural limit here. Booking in advance makes sense when it can result in big savings on a longer journey which would typically see a traveller make plans in advance. But for short, one-off trips there’s little point as it would only make them less flexible.

“Trainline is doing what is within its own compass to get back on track – it did better than expected on cost savings and is now bringing back staff and even beginning to spend on items like marketing again.

“The introduction of features such as ‘crowd alerts’, allowing passengers to opt for less busy services on which will it be easier to socially distance, will increase its relevance to people but feels like tinkering at the edges when you arrive at the fact that people are simply not buying as many train tickets as they once did.”

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The daily market update is written by Russ Mould, AJ Bell’s Investment Director and his team. The article highlights the movement in the main index, winners and losers on the day and any macro-economic announcements.