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“Investors appear to have taken the view that yesterday’s global markets sell-off was overdone and now it is time to buy some of the stocks worst hit,” says AJ Bell Investment Director Russ Mould.
“Leading the charge on the FTSE 100, which advanced 1.1% to 6,920, were miners, oil producers and banks – all sectors highly leveraged to economic activity.
“This feels more like a dead cat bounce rather than a healthy rebound as all the arguments behind yesterday’s sell-off remain today.
“Inflation is still a major threat and there are plenty of reasons to expect the global economic recovery to slow down.
“White goods seller Electrolux and car maker Volvo have both warned about pressures from supply chain issues, and we will no doubt get more companies issuing more mixed outlook comments when they report second quarter earnings over the coming weeks.
“There is no need to panic, but investors should remain cautious in the current environment.”
EasyJet
“Airlines are used to thinking on their feet and EasyJet has certainly been busy trying to find ways in which to generate as much revenue as possible during the pandemic.
“Having raced to cut costs in the business, it is now shifting attention to customers in Continental Europe where there are more opportunities to make money than the UK.
“Many companies the size of EasyJet would not be able to adapt so quickly, so credit must be given to the company for being able to shift a lot of moving parts.
“Nonetheless, it must still cope with two prevailing negative factors.
“First is that customers are booking a lot closer to the fly date, which means earnings visibility isn’t as strong as pre-pandemic.
“Second is that EasyJet still only has a fraction of the number of seats available to book compared to before Covid struck the world. That’s because demand is still mixed towards flying as government restrictions keep changing on a weekly basis, putting a lot of people off from going by plane on holiday this year.
“Reduced capacity helps to keep a lid on unnecessary costs if the pool of willing flyers has shrunk, but it also indicates the fragile state of the airline industry at a time when many other industries are busy investing for the future, having put Covid in the rear-view mirror months ago.
“The worst thing that could happen to EasyJet now is another wave of Covid infections causing governments in Europe to impose new lockdown measures.
“It’s summertime and the airline industry is meant to be at that point where bookings take off, and so do more planes. A lot can change in the next six to eight weeks, but every day counts for an industry that is still losing a lot of money.”
Fevertree
“Any trading momentum fizz at premium mixers firm Fevertree has gone flat thanks to the increased costs the company is facing.
“However, management can’t be blamed for the hit to margins from increased logistics costs any more than they could be taken to task for a change in the weather.
“The increasing costs of shipping goods globally is something many businesses are facing at the moment and it is sobering to see Fevertree suggest this could be a problem for the medium term at least.
“From the perspective of Fevertree itself the big growth it is seeing in the US is encouraging and probably more significant to the company’s long-term prospects.
“Growth in the UK market is slowing, implying that after years of rapid expansion the company is reaching saturation point in its domestic market.
“However, its rapid growth in the US and Germany suggests there are still untapped opportunities for Fevertree to exploit.
“The US is a huge market and the company’s progression from its traditional focus on tonic water, lemonades and soda water for the white spirits mixer market into ginger ales, ginger beer and cola for the dark spirits market in recent times should help in the States given American’s preference for whisky and rum.
“The company is also seeing some benefit from reopening as on-trade sales return and encouragingly it is still enjoying higher off-trade sales than it saw pre-Covid.
“Fevertree benefits from an asset-light, outsourced model which means it has greater flexibility to respond to changes in demand.
“It also means it has less money tied up in its operations so a higher percentage of sales convert directly to cash.”
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