Do women make better investors than men?

Despite there being fewer women in the stock market, research has shown women outperform men when it comes to investing. Studies found only 45% of women invest compared to 63% of men, yet women achieve 1.8% higher returns over a three year average compared to their male counterparts. So why do female investors have an edge?

Hargreaves Lansdown found women have an edge, finding women had an average return 0.81% higher than men over three years. If this was compounded over 30 years, an average woman’s portfolio would be 25% greater than the average man. A study by Warwick Business School tracked the performance of investors over three years to find women outperformed the FTSE 100 and received much higher returns than men. Where men only achieved an average 0.14% higher than the FTSE 100, women achieved an annual average return of 1.94% greater than the FTSE 100. 

Why do women tend to invest less? 

Women are less likely to invest in the stock market, which isn’t a huge surprise in this male-dominated industry. This might be due to a lack of role models as there are much fewer high-profile female investors than men. Ever heard Geraldine Weiss? She is one of the world’s most successful traders yet does not nearly get as much press coverage as her male counterparts. Weiss hid her gender for decades to get an even standpoint for investing.  How did she do so well? She kept her cool and never let emotions or overconfidence affect her decisions.  Everyone has the potential to carry these features to trade successfully, however, women naturally hold a greater tendency towards these traits.

Photo by Karolina Grabowska on Pexels.com

How do women tend to invest?

Women tend to prioritize cash savings over stocks and share investments, a study by YouGov found 55% of women have never invested compared to only 37% of men. Women tend to make less risky financial decisions as there is a greater fear of loss. Women tend to stay away from making money quickly and opt for the slow but less risky road to achieving profits. A study by Warwick University found women tend to invest in funds that produce consistent profit over volatile individual investments. This way the investment is diversified and the risk is spread across a number of companies, reducing losses. While it might seem playing it safe shouldn’t reach greater rewards, there is a much greater guarantee of profit. Men tend to be overconfident and are more likely to buy more on a high and sell more in losses, based on their greater affinity for impulsive behaviour. Furthermore, women tend to trade less frequently than men, Hargreaves Lansdown found women traded funds 67% less than men, suggesting women have a much longer term eye for investment. This outlook means trading costs and transaction commissions are dramatically reduced for women, who tend to invest more conservatively. 

Why should women invest?

It is important for women to at least be aware they can achieve financial equality and independence, as historically, especially in some cultures, women are dependent on male family members or partners. In the face of change, investing is one of the ways women can match or exceed the potential of male counterparts to gain wealth. Having a well-balanced savings and investment portfolio is crucial to ensuring one’s personal and family’s well being. A long term goal like a house, wedding or starting a family can be achieved by investing the right way. Holding cash in a bank with low interest rates will hold you back from achieving your goals, whereas investing in a fund will gain profit higher than a regular savings account and push you further. 

Women are in the minority when it comes to investing and there are countless reasons for this. But that doesn’t mean they can’t invest and achieve profits the same as men, or better. Investing in your future is essential for everyone, whatever gender. Start your trading journey with BullBear. 

Trading 101: What is Day Trading?

Day trading has a reputation for being high-risk high-reward which can leave beginners in the gutter. Day trading requires skilled technical analysis, self-discipline and objectivity. This type of trading is highly profitable, but has a low success rate. The complexity and high risk of day trading is not for the faint of heart. Furthermore, critics say active trading strategies such as day trading do not perform as well as a passive strategy, on average. But don’t let this put you off learning about it!

What is Day trading?

Day traders are active traders who profit off price changes within a single day. It is most common in the foreign exchange and stock markets and are usually for more experienced traders as day trading requires knowledge and large funds. Day traders use high leverage assets to make profit on small price movements, such as highly liquid stocks and currencies. Day traders are looking for market movement and often look for events in the news to judge what to trade that day. Traders can follow an economic calendar to see scheduled announcements of corporate earnings or economic reports. Sudden moves created from these announcements are what day traders make profit from, as there is a period of adjustment between company news and share price.

Here are some strategies employed by day traders:

  • Scalping: this strategy makes profits on very short-term and small changes in price. A trader may do tens to hundreds of these microtransactions in a day.
  • Range trading: this relies on support and resistance levels to judge when best to buy and sell. 
  • News-based trading: this type of trading looks for news events that will increase volatility temporarily to make profit.
  • High-frequency trading: this strategy utilizes algorithms that exploit tiny inefficiencies in the market.

What you need to Day trade

Knowledge

To successfully day trade, an in-depth understanding of how markets work and strategies that work to make profit from short-term positions is required. Certain skills are utilized by experienced traders to make day trading profitable, having a good grasp of technical analysis and chart reading are among the most useful. Building your knowledge of the marketplace is fundamental to success. In particular, try and understand the specific behaviour of the products you trade to better grasp their market patterns. Foreign exchange and liquid stocks are popularly traded as they have a high volatility and therefore a high potential profit which is good for these short-held positions. 

Capital

Not only do you need experience under your belt but you need fat stacks in your pocket. Day trading isn’t something everyone is equipped to do. It is best to use risk capital – money which you can afford to lose – to protect from major losses that could lead to bankruptcy. 

Discipline

Discipline is another fundamental for day traders as following a specific strategy is the best path to profit. By setting a plan at the start of the day and specific criteria for trading you can control and optimise your trading success. It also allows you to examine and improve your trading strategy to optimise profit.

Kit

Perhaps it’s a trading desk at a large company or perhaps it’s a home office, the right trading set up is crucial to harness profits and day trade successfully. Access to a live news feed will inform day traders of key events indicating times to buy. There is software out there that analyses important news feeds to direct you to the most important stories. Every minute counts with day trading! Furthermore, you would need some fancy kit – analytical software that can recognise patterns and generate algorithms to predict future price movements will really help you out. But it’ll set you back a fair amount. 

Rules for day trading

Day trading can be difficult to master and requires a lot of time and effort to succeed. If you have an idea of your risk tolerance, capital and trading strategies then do go ahead – after you’ve practised of course. Day trading is hard to do part time as your full attention is required when markets are open and needs a fair amount of experience to succeed. If you do decide to try out day trading then focus on a very specific asset class and really learn how it moves. A good strategy will mitigate losses!

Do you aspire to be a day trader? Start small and build up to day trading! Download BullBear’s app to practice trading risk-free. 

The race for a vaccine isn’t over.

After Monday’s breakthrough announcement by Pfizer, the 90% effective vaccine is dominating stock market news, but you must keep an eye out for other vaccines in the race. Pfizer’s vaccine doesn’t mean the game is over as pharma corps continue to compete to produce an effective vaccine suitable for distribution.

Pharma stocks to watch.

Stocks have rallied after Pfizer’s press release earlier this week with the CEO cashing out 60% of his own shares, worth $5.6M, the same day as the announcement. While some stocks have boomed including the S&P 500 and the Dow Jones Industrial Average, many have dropped.  Those companies which are not going to benefit from the vaccine include Zoom, Citrix Systems and others that have been thriving during the pandemic. Other top winners include Rolls-Royce who hugely support aerospace and Cineworld as hopes raise that cinemas will reopen sooner than thought. 

A Pfizer vaccine by 2021 would be a game changer for investors with reflation trade thunder the microscope. However, there is a lot of room for setbacks as Pfizer is yet to release exact data from their clinical trials and only have preliminary safety results. Furthermore, coronavirus will inevitably mutate and there is no certainty as to how quickly Pfizer’s mRNA vaccines can be adjusted accordingly.

For much of 2020 biotech has performed well in stock markets as there is an increased demand from the higher rate of illness worldwide. The front runners from now on will depend on if other vaccine producers can match the rate of efficacy of Pfizer. But overall pharmaceutical companies should continue to thrive. Especially with the split Senate and House which will protect biotech in the US and a Biden win pledged to boost support for healthcare in the US, which will likely float pharma corps.

Why do we need more than one vaccine?

There are several different types of vaccines with various rates of effectiveness. Each type is better suited to different population groups, winners will have better success in those vulnerable to coronavirus like the elderly or BAME groups. Therefore health ministers won’t be settling for the first vaccine out there. There is speculation on whether the Pfizer vaccine is safe and effective in elderly groups as the details of who the vaccine has been previously tested is yet to be announced. 

Thankfully the type of vaccine Pfizer have developed is prime for easier and efficient distribution. Pfizer’s vaccine uses mRNA technology which is faster, cheaper and safer than other types of vaccine. 

Who else is in the race?

Other pharma crops are said to be very close to producing other types of vaccines against coronavirus. Runner-up pharma’s include AstraZeneca, Johnson & Johnson, 0.02%, Inovio Pharmaceuticals, -9.22%, Novavax, 9.41% and Sorrento Therapeutics, 13.16%. Pfizer’s results have shadowed other vaccines being developed which will lead to a lower demand for other COVID19 treatment avenues.

Moderna is up 4.52% as people clock on that their work to develop an mRNA vaccine is proven possible. Moderna’s mRNA vaccine works in a similar way to trigger antibodies as the Pfizer vaccine and is likely to have positive results that are due to be announced on 22nd November. The validation of mRNA technology boosts confidence in all of Moderna’s projects with stocks projected to increase long-term.

CureVac, another company developing an mRNA vaccine, saw stocks rise 5% on Monday as hopes were raised for other successful vaccines. Although CureVac’s vaccine has produced promising results, they have only completed a Phase 1 trial so there is a long road ahead.

Other Covid vaccine candidates who don’t use mRNA technology including Johnson & Johnson, Novavax and GlaxoSmithKline stocks gained 3% on Monday with Astrazeneca up 2.4%. Though if their hard work will prove fruitful is another question.

While all attention is on Pfizer, other pharmaceutical companies shouldn’t be forgotten. Keep up to date with the latest news with BullBear. 

Pfizer Vaccine Boosts Stocks

Today Pfizer has hit the headlines announcing their coronavirus vaccine with BioNTech giving hope to people across the world. The drug company Pfizer’s shares jumped 14% after the announcement of their vaccine, a true milestone in scientific history. The FTSE 100 followed suit, soaring by 5.5% immediately after the vaccine announcement, including shares in Informa soaring by 44% and International Airlines Group by 39%.

The race for a vaccine among pharma giants is over. Pfizer’s vaccine, said to be 90% effective, has been tested on 43,500 people so far across six countries and proven safe. The company plans to apply for emergency approval to use the vaccine before the end of November means the end of the pandemic is in sight!

Stock markets have already been rallying after Joe Biden was confirmed president. The clear end to the election buoyed markets, but traders could never have predicted today’s charts. This morning’s announcement of an effective vaccine has produced unprecedented stats in the stock markets with economic recovery in the pipe-lines has set rises across sectors. 

All the sectors hardest hit by coronavirus have seen record-breaking surges in share price. Travel, hospitality and events are rejoicing with the news that the pandemic will hopefully come to a close by 2021 and they can resume business. Airlines have seen the biggest gains with aerospace engineers Rolls-Royce rising 45%, British Airways owner IAG soaring 35% and EasyJet increasing 31%. The hospitality sector has also seen huge gains, catering company the Compass Group’s shares soaring 40%. 

We will see a sharp reverse in the thriving market of online shopping sparked by the recent wave of lockdowns as the public holds out for shopping in-store. The vaccine announcement has already caused Ocado shares to drop by 9& and Just Eat by 7% with many other companies that have made profit during the pandemic set to make a U-turn. 

It is very early days in terms of the practicalities of cost, manufacture and distribution  of the vaccine, which likely means the vaccine will only reach the public in the early months of 2021. Although there is a wait before we will see results from the vaccine, 2021 is looking like a much brighter and prosperous year. 

Act quickly to make the most of today’s market changes. Keep up to date with the latest stock market news and trends with BullBear. 

Trading 101: What is Cryptocurrency?

You may have heard that PayPal now accepts Bitcoin as a legitimate currency, this is a huge breakthrough for crypto supporters! Will we start seeing more companies accepting cryptocurrencies over the next few years or are they dead in the water?

Cryptocurrency has an average daily trading volume nearing Forex making it a huge success since the first digital currency (Bitcoin) was launched in 2009. Many people believe cryptocurrency is the future, what do you think?

What is Cryptocurrency?

Cryptocurrencies are digital currencies which were created by private bodies. At the moment they are not legal tender so you cannot pay for things in the same way you can with the pound or the dollar, but the future is bright for cryptocurrency. 

Blockchain is a type of technology that regulates cryptocurrencies. Cryptocurrency is created, distributed, traded and stored in this decentralised ledger system. 

There are alot of types of cryptocurrency, the most popular being Bitcoin, but names such as Litecoin, Ethereum, Ripple and Stellar may also be familiar. 

Bitcoin is the first and largest cryptocurrency by market cap. It was created in January 2009 after the housing market crash. You can’t physically hold a bitcoin as they are a digital currency, however you can see everyone’s ownership through access to a public ledger. Your personal balance of Bitcoin tokens are kept using keys, which is essentially an encrypted password. So although your personal Bitcoin balance is private, there is a public element to it! So you may be wondering who regulates the transaction of Bitcoin? Miners are people who process the transactions on the blockchain in return for rewards (new bitcoin releases) and transaction fees (paid in bitcoin). Miners act as the decentralised authority to make the Bitcoin network credible, similar to central banks for national currencies. However, Bitcoin are released according to an algorithm and the schedule is available beforehand, whereas national currency is released at a rate matching economic growth to stabilize markets. Bitcoin mining therefore is the release of bitcoins into circulation, some say all bitcoin will be released by 2150 so there is plenty of opportunity for growth. 

How can cryptos make me money?

There are two ways you can make money. The first is by buying and therefore getting ownership of cryptocurrencies through a cryptocurrency exchange and is best for long-term investment. There is often a fee and commission so watch out for sites which are looking to rip you off!

The second way to make money off cryptocurrencies is by trading them as CFDs, where you are essentially betting on the direction of price change. This is better for short-term trading as price fluctuations can be rapid and there are holding fees for CFDs which you don’t get with cryptocurrency exchanges.

Is it worth it?

There are pros and cons for trading cryptocurrencies as with any asset, so heres the run down. 

Pros

  • Volatility: Cryptocurrencies are around 100x more volatile than forex currency. Cryptocurrency has no managing bodies to regulate their price, they are purely influenced by market forces. This means they fluctuate, A LOT. But this is actually good news as higher volatility means more opportunity to profit from changes in the market, but beware with high volatility comes high risk. 
  • Low leverage: Trading cryptocurrencies usually has low leverage of around 2:1 due to the high risk and volatility of the asset class. Therefore you are unlikely to make losses enough to make you broke!
  • 24/7: Brokers typically open cryptocurrency markets on weekends meaning you can trade all week round.

Cons

  • Cost: Cryptocurrencies have a fairly high commission compared to most asset classes, with Bitcoin charging around 0.4%. This doesn’t mean you can’t make a decent profit, it is just something to bear in mind for short-term traders.
  • Sensitivity: Most cryptocurrencies are smaller than national currencies and are therefore more sensitive to issues such as integrity, adaptability and popularity. 

Cryptocurrency is an amazing invention but it isn’t the easiest to trade. We’ve just covered the tip of the iceberg! We recommend you learn more before you start investing in crypto and practice before you invest with BullBear.

US Election | What’s happening to stocks?

The uncertainty brought by the US election race has led investors to focus on the dollar with a rise by 1% against most global currencies. The dollar had a fair few ups and downs last night as Trump saw higher success than expected. Some surprising currencies have weakened including the Chinese yuan, Australian dollar and Norwegian crown. Share prices in Wall Street’s Dow Jones Industrial Average will start low today. Read on to learn more about how the US election will affect stock markets. 

If Trump stays on

While history cannot predict the future, studying the past can give an indication of events that will unfold. During the past 14 elections half saw the president serving a second term, which drove stocks to gain on average 14.4% the following year. Where a new party taking office has previously led to a market fall of 1% the following year. This is based on more certainty with  keeping the same party in office as policies are unchanged protecting businesses from new regulations and standards that could harm performance. However, this is based on fairly stable US economies, which is fair to say is not the state today.  A key indicator of results in past elections is that all presidents who have avoided recession have made it to a second term. Trump has not achieved this and has been heavily criticized for his failings in handling the coronavirus dubackle. But in general, a Republican win supports stock prices as policies favour boosting earnings and profits. Where a Democrat win will see reduced equity prices as the focus is on retribution of wealth and tackling social rights. 

A Biden win

Share prices will boom with a Biden victory as the Democrats achieve a massive stimulus package sparking investors to go long on commodities, short on the US dollar and short on US treasuries. If Biden continues to pull votes in the six outstanding states (Nevada, Wisconsin, Georgia, Michigan, Pennsylvania and North Carolina) a victory would lead to a higher path of inflation and a weakened US dollar. So watch this space.

What sectors are riding the high?

The healthcare sector is booming with pharmaceutical firm Astrazeneca up 4.4%. This is as with the current Biden majority, pharmacorps have the opportunity to use their donation history as leverage for possible renegotiations once he takes the White House office.  

However, if neither party achieves a decisive win the huge fiscal package will be disputed. A marginal Biden victory will likely be worse for risk assets. With uncertainty across markets, investors have turned to the high growth of the tech sector.  The US futures market will boom today when trading opens with Nasdaq futures likely up 3%!  A Trump win could push Nasdaq even higher, although this is all speculation at this time. 

So what’s happening in the UK?

Today the pound is recovering some losses as the election race continues and a Joe Biden Victory is likely. This is triggered by the larger stimulus package the Democrats will be releasing that will bring down the US dollar. The performance of the pound over the next day or two will depend on how tight the election results are, with every Trump win the pound will get weaker. 

Growth has dipped in the UK this October and will continue to fall as new COVID lockdown restrictions are put in place. FTSE 100 is up 0.2% today under the muddle of the US election outcome. With unemployment rates increasing the economy will continue to struggle. The near future is fairly bleak. The UK economy is on track for a double-dip recession this winter with a slow and challenging recovery through 2021. The tighter restrictions in the UK service sector including hospitality, travel and leisure has seen a near stall this past week. With record low growth this summer, further limits on growth will have serious repercussions. 

With many hours and possibly even days before an overall result there is a lot of volatility up ahead. If you’re inexperienced, stay well clear. Keep up to date with the latest stock market news with BullBear.  

Trading 101: What is Forex?

Currencies need to be exchanged to conduct foreign trade and business, making foreign exchange markets the largest and most liquid assets in the world! If you want to learn a little more about the pros and cons of forex trading, read our article.

Forex is one of the oldest assets to be traded and is regulated by governments. Before the internet only large multinational companies and hedge funds traded forex as it required high amounts of capital. But thanks to the internet, it is much easier to trade forex, brokers can allow individuals easy access to the foreign exchange market no matter their budget. 

What is Forex?

Forex is shorthand for foreign exchange, and can also be noted as fx, it describes a global market of exchange between currencies. Forex trading covers the highest trading volume of all assets with daily transactions pushing into the trillions! A currency pair/ cross is the exchange rate of two currencies quoted against each other e.g. EUR/USD. The currencies that are traded the most include the U.S. Dollar, the Euro, the Japanese Yen, and the British Pound. 

Forex as an asset class works slightly differently to others as you can earn from differences in interest rate as well as from changes of currency values. You can profit from the difference between two interest rates in two economies by buying the currency with the higher interest rate and shorting the other currency. This is called a ‘carry trade’. 

Forex is most commonly traded as Contracts For Differences (CFDs). CFDs are almost like a bet, where you agree the pair will rise or fall in the market to make a profit or loss. This is different from other ways of trading as you don’t hold ownership of the asset, but instead are deciding which direction the asset will go in a contract with the broker. Forex traders often trade in the short term for profit as long-term trades do not suit its characteristics.

Pros & Cons of Forex

Some people swear by forex due to the following characteristics:

  • Low Volatility: This is because central banks can control currencies demand and supply through monetary measures, to optimize stable exchange rates. 
  • Low Cost: The cost of trading is fairly low with commission commonly at 0.08% of the asset’s value. Other asset classes, including cryptocurrencies have much higher commission rates.
  • 24 hours: The retail forex market opens Monday morning set to eastern time zones and closes Friday night according to U.S. time zones meaning you have 5 full days to trade with! Although the best time is 9am-12am New York time each day. 

The risks: 

  • Unregulated: National banks have varying degrees of regulation meaning forex instruments aren’t standardised across countries. You should check which forex dealers are regulated so you are protected and trade safely.
  • High Leverage: You can sell above the amount of money in your trading account as brokers consider the low volatility of forex. This means you can carry out a large trade with a small account balance at around 100:1! Beware that extremely high leverage can make dealers become insolvent with no notice. 
  • Need specialist knowledge: Having a thorough understanding of economic fundamentals and indicators is necessary to understand how different economies adjust their currency values. It is also key to see how different economies interact as this will affect which currency pairs are more or less profitable. 

Forex trading is great for beginners with low funds who want to be active everyday. For people with larger funds and longer-term horizons forex is not the way to go. If you want to start trading forex we recommend you learn an overview of the macroeconomics that drive different currency values and practice before you invest with BullBear.

Investment Types

When is the right time to start investing? You may think you are too young to worry about investing or you just can’t be bothered to deal with the hassle. Investing is a quick and easy way to look out for yourself in the future. If you have a pot of cash lying around then why not invest, making money from your money is the smartest way to get a profit. Read our helpful guide to see which investment opportunities might suit you. 

So how much should I invest? 

You don’t need to be swimming in money to invest, by drip-feeding small sums into investment opportunities you can still make a huge profit. Never invest money that you might need to rely on to live, that is just setting yourself up for disaster. It is always wise to not invest more than you can afford to lose. This is to protect yourself from unforeseen circumstances such as a stock market crash (Thanks COVID). By drip-feeding your money you want to save, for example once a month, for a long period, ideally more than 2 years, you have enough time to ride out any bumps in the market that might see you losing your investment. It is best to invest as soon as you can as your money compounds, whether that be by interest rates or else, the earlier you invest the greater return you’ll get. 

So what can I invest in?

Anything you can buy and sell! We will take you through more conventional options but you can really invest in anything from gold and property to collectable stamps and legos. 

Savings Bank Account

Savings accounts are often just as easy to access and use as regular bank accounts, and they usually have a higher rate of interest. Considering the current climate and low interest rates of recent years a savings account is not a get rich quick scheme, it’s far from it. The best thing is to research different bank accounts to see who offers the highest rate of interest. So while you can benefit from free and easy access to your money you can earn a little appreciation on the side. 

ISA’s

In the UK you are given a personal allowance of £20,000 tax free savings held in ISA’s. Individual Savings Accounts are one of the most popular ways to invest, especially due to the government’s support. There are loads of different types including stocks & shares ISA’s, cash ISA’s and lifetime ISA’s (a recent replacement of the old government help-to-buy scheme). This is a fantastic way to save up for your first property, especially as the government contributes towards your future home! Each ISA is slightly suited to different people or investment needs so make sure you do your research. ISA’s are fundamentally a way to invest long-term tax free. However, there are a few drawbacks… the cash benefits are not as high as some of the more risky strategies and you can’t access your money for a fixed period of time. So if you looking to risk your investment to make a huge profit or will need to access your money ISA’s may not be for you.

Mutual Funds

Mutual funds are a way of buying shares indirectly, where a Fund Manager uses their expertise to invest on your behalf. This way there is less risk compared to investing in the stock market as it doesn’t require research or experience to know which investments will pay off. It also spreads the risk over a number of individual investments to ensure you make a return. However, with less risk brings a lower return than direct investment due to commission for the Fund Manager and certain risk control measures that are required.

Stocks

Stocks are direct shares in companies and other asset classes. There are thousands of different types of stocks available on the market so you can choose the best companies to invest long-term to gain a profit. Investing in stock can provide profits way above bank accounts, but there is a lot of risk involved. You can gain profit by buying shares for a period of time and selling them when they are worth more. Although sometimes stocks won’t appreciate like you’d hope due to market volatility or other reasons, hence why stocks and shares are a high risk investment. It is important to remember they pay out dividends too, a small thank you present of cash that companies give out if they are succeeding which is a great little bonus. To invest in stocks and shares you must use a broker, to choose the best see our recommendations here. With the stock volatility brought by COVID-19, stocks have become increasingly appealing to the public. Market research done by eToro found a 66% increase in interest this summer compared to last summer. Will you hop on the bandwagon to start your investment journey?

Read through the options out there? Diversifying your investments is a great way to protect yourself from risk and ensure a profit. For info and learning tips on how to invest, follow bullbear.io. 

What is the point of negative interest rates?

The economic uncertainty triggered by the coronavirus pandemic has led people to be more cautious with their money. Central Banks adjust interest rates to stabilize economic growth and this is how… 

What are Negative Interest Rates?

A positive interest rate is the extra money you receive from your bank, where a negative interest rate means you lose money  from holding it in a bank. This charge or cost for the lender is rare and for some people, they’re unheard of. But negative interest rates play a key role in stabilizing economic growth.

With the global pandemic going strong, interest rates have been dropping as decision-makers have been focusing on limited economic damage. Currently zero-percent interest rates are common, but with the virus here to stay, will central banks have to push interest rates to go negative to boost growth and prosperity and tackle rising unemployment rates? Central banks use interest rates to control inflation by adjusting the cost of money with the goal of keeping the economy running at the optimum level. If economic growth and inflation need to be checked then interest rates will be elevated, whereas if growth and inflation are below the central banks targets interest rates will be lowered to give the economy a boost. At lower interest rates, the cost of borrowing is lowered to encourage spending and inject life in the economy, while raising interest rates stagnate spending to control the rate of growth. 

Examples across the World

Negative interest rates are rare but not unfamiliar to the most prosperous economies of the world, including Switzerland, Denmark and Japan. This means it costs banks to deposit money with central banks and as a result consumer banks will encourage loans at low cost to the public to counter the cost of depositing money in central banks. 

Central banks worldwide are considering pushing interest rates into the negative to boost spending to counter the effects of COVID-19. However, central banks have other tools apart from interest rates in their armery which can boost the economy without costing those who want to save. For example, they can increase quantitative easing to improve liquidity. 

What’s bad about negative interest rates?

Positive interest rates supports the banking sector as it supports profit from loaning to the public. Public banks are at risk when negative interest rates are employed as it lowers their turnover.

Another issue is the failure to see positive results from adjusting interest rates. The aim of slashing interest rates is to boost growth and inflation by encouraging consumer spending. However, this cannot overcome personal finance problems due to higher employment rates and uncertainty brought by coronavirus, which lends people to be more conservative with their money, no matter what strategy central banks impose. This would mean there is little economic growth despite encouragement from central banks to inject money in the economy.

There is still dispute over the effectiveness of negative interest rates as other monetary tools are implemented to boost market liquidity when inflation and growth are lacking. Introducing negative interest rates is a fallback for unsuccessful measures, hinting at the extremeness of the economic crisis. A lot of countries’ central banks will be faced with this dilemma as other monetary tools prove ineffective.

What does this mean for the stock market?

The stock market is the most rapid to react to changes in interest rates. Companies are affected by bank rates directly, so as interest rates drop they can afford to take out loans that will encourage growth. Economic growth for a company boosts stock prices. However, companies are also affected indirectly, as lower interest rates encourage spending of disposable income, revenues will be boosted, in turn, increasing stock prices. 

The change in interest rates causes volatility and therefore rapid changes in stock prices. Traders can take advantage of this market change as initial changes in stock price are smoothed or rebounded over time. Furthermore, the premonition of interest rate changes is enough to cause volatility as traders project changes to the stock market ahead of central bank announcements. Traders often keep a close eye on an economic calendar which clocks announcements that influence the stock market in order to predict events and make a profit. 

Although volatility creates opportunity for profit, there is also increased risk. So be careful and keep up to date with the latest economic news with BullBear. 

Stocks to buy before 2021

Are you confused by all the market changes happening right now? Not sure who to invest in next? We provide a simple overview of what we think are the best stocks to buy in the next three months and why. 

Disclaimer: We do not claim to provide any financial advice. All content is purely for entertainment purposes only. 

Coronavirus has clouded market predictions as the uncertainty of the virus’ actions produces a highly uncertain economic outlook. Therefore, we think the best companies to invest in now are those that have weathered the storm during the 2020 lock-downs and economic hits proving their resilience to the virus. Some sectors have benefited from the virus, others will make a return in a recovery, where the most resilient have proven strong throughout. Read on to find out the sectors that should be on your watch list. 

Insurance groups

Admiral, a top UK insurance group, has benefited from the reduced insurance claims from reduced activity during lockdowns. The stock currently yields 5.4% as the company outperforms this year’s targets. Stock holders even saw an increased dividend where most dividends are becoming fewer and further between. Another UK insurance company, Direct Line have profited from the same traits, producing a prospective dividend yield at 12% of the current share price. 

Luxury Brands

Demand for luxury products and services has plummeted this year as high unemployment rates and economic uncertainty dominate. However, due to this crash analysts expect a huge resurgence in 2021 for the luxury brand market. Brands such as Burberry who have high profit margins and generous shareholder payouts are ideal to invest in as the demand for luxury brands return. During the height of the pandemic they were forced to shut their doors and sales took a significant hit, but the outlook is much brighter as luxury brands are likely to make the strongest recovery. 

Hotel Groups

Hotel groups such as InterContinental Hotels, who were forced to close their doors across the world, are likely to see a much slower recovery to pre-covid traffic. As one of the largest hotel groups globally, InterContinental Hotels are likely to make it through the uncertainty brought by COVD-19. Similar to the luxury brand sector mentioned above, the hotel industry is likely to make a huge return during economic recovery as people begin to travel again. Watch out for a merger with Accor, a European hotel group, as this would push the group to the largest in the hotels industry. The merger would reduce costs through economies of scale and increase returns for investors making them an even stronger investment opportunity.

The Resistance of Technology

As we switch to more online and remote activities, companies that support this are booming, Many of you have been following the movements of Amazon over the pandemic. This mega company will produce consistency and resilience in the face of COVID-19 due to its dominating and somewhat essential services.

Technology companies deserve the medal for coming through the pandemic the strongest with Apple, Alphabet, Salesforce, Zoom and Microsoft providing consistent revenues supporting the new remote working workforce. For example, Zoom has grown by over 620% since going public in spring 2019 and Salesforce’s perfect position to support the increase in cloud based storage and online shopping during the pandemic is here to stay.  As companies see the benefits of working from home these tech giants, which enable productive remote working, will continue to turnover huge profits which make them a safe investment through 2021. Alphabet holds 28% of the digital ad market and is  growing their cloud based sector as it continues to offer robust solutions to technological problems. You won’t see Google disappearing off the horizon any time soon…

As the stock markets are so unstable, there lies a wealth of opportunity to take advantage of this! Consider following our recommendations and investing in companies with a bright future beyond coronavirus. Keep up to date with the latest news here.