Markets rebound as investors turn to defensive stocks, while Wetherspoon hit by tougher lockdown restrictions

“After yesterday’s market bloodbath, it’s a relief to see stocks back in positive territory. The FTSE 100 jumped 1.3% to 5,907, albeit the index’s performance remains a huge disappointment with a 22% loss year-to-date,” says Russ Mould, Investment Director at AJ Bell.

“A lot of people will have put their money into funds tracking the UK’s biggest stocks expecting household names to deliver decent gains year after year. Sadly 2020’s performance has been a reminder of the risks of putting money into equities and that markets can go down as well as up.

“Bright spots on the FTSE 100 at the end of the trading week were companies that provide products in demand regardless of the state of the economy. This included drugs companies GlaxoSmithKline and AstraZeneca, cleaning products-to-baby formula maker Reckitt Benckiser and tea-to-ice cream seller Unilever.

“These stock movements would suggest that investors are seeking defensive qualities in their portfolio. Some of these companies may only achieve low levels of growth, but it’s their ability to sustain growth which really appeals in the current environment.

“It seems that investors are increasingly pricing in the chances of another full lockdown in the UK and perhaps other parts of the world to get a grip on the pandemic. One might expect gold to return to favour in this situation as the metal has historically been considered a safe haven during troubled times. It is currently hovering around $1,909 per ounce.”

JD Wetherspoon

“At one point it looked as if Wetherspoon was going to be a winner from covid-19. Its pubs were generally spacious, making it easier to abide by social distancing rules. It already had technology in place to enable customers to sit down at a table and order via their mobile phone. And its prices were low, appealing to people under financial pressure either because they were on furlough, lost their job or just worried about job security.

“Unfortunately, tougher lockdown restrictions have made its recovery like cycling up one of the steepest hills imaginable. Wetherspoon is pedalling as hard as it can, but progress is getting slower and slower.

“Being forced to close its doors at 10pm just when the party might be in full swing is a major problem for pub operators. Judging by Wetherspoon’s latest sales figures, this early closure has been damaging to the sector as many people now simply cannot be bothered going out to the pub.

“Wetherspoon probably has a better chance of surviving the crisis than most of its peer group. It will have to knock some heads together to come up with some clever marketing tactics to get more people through its doors, yet the business is never afraid of lowering prices even if it means lower profit margins.”

These articles are for information purposes only and are not a personal recommendation or advice.

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.