Stock market crash, what stock market crash?

While some companies have plummeted in the stock market crash, others have been thriving. David Barnes takes a look at the reasons why.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

When the stock market crashed in March, pretty much no sector escaped unscathed. But since then, some companies have continued to struggle while others’ share prices have risen past pre-Covid-19 levels.

What trends can we identify here and how can we protect ourselves against a future stock market crash?

Sectors thriving through the stock market crash

Any sector that is cyclical and dependent on a strong economy has performed poorly in the stock market crash. Travel, tourism, construction, oil, property, retail, banking, and leisure have all been hit hard.

Conversely, utilities might not provide much growth, but they come into their own in a stock market crash. Their dividends are dependable, as everyone needs water and electricity, so earnings are stable no matter how the economy is performing. Pennon Group, for example, hit its all-time high this year.

Healthcare and consumer durables are both traditionally defensive and have weathered the storm well. AstraZeneca is now the biggest stock by market cap in the UK. Hikma Pharmaceuticals has stormed into the FTSE 100.

Consumer durables like Unilever and Reckitt Benckiser have proven resilient partially because they sell products like soap or hand sanitizers, but also because the range of products they sell tend to be in demand regardless of the state of the economy.

Miners of precious metals have also seen their share price climb as investors pile into gold and silver. There is usually a strong negative correlation between a stock market crash and the increase in demand for gold so precious metals can act as a good hedge in your portfolio. Centamin and Fresnillo have risen 60% and 90% respectively since the turn of the year.

The star performing sector?

Arguably that belongs to technology. While not traditionally defensive, many tech shares have prospered. An astonishing fact is that the four biggest US tech stocks now have the same net worth as Japan, the world’s third largest economy.

Closer to home, video gaming stocks have been on a charge as lockdown has increased use and driven revenues higher. Codemasters and Keywords Studios are beneficiaries here.

But there are strong performers everywhere you look in technology. Ocado (online shopping tech), Avast (cybersecurity), Kainos (IT solutions). My only worry is perhaps prices have been driven too high into a bubble scenario like we could be seeing with Tesla stock in the US.

How to protect yourself

How do you avoid a future stock market crash? Unfortunately, no one can consistently predict the future. All you can do is diversify your portfolio to protect yourself as best as possible.

Most big investment sites will analyse your investments for you. The advice here is not to avoid cyclical stocks. When the economy rises, they might well be your star performers. But try to have a balanced portfolio across all sectors but also across stocks, bonds, commodities, and property.

Geographical diversification is also key. The FTSE 100 market is over 20% down from its 12-month high, but the NASDAQ is at an all time high.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

David Barnes owns shares in Unilever. The Motley Fool UK owns shares of and has recommended Tesla. The Motley Fool UK has recommended Fresnillo, Hikma Pharmaceuticals, Kainos, Keywords Studios, Pennon Group, and Unilever. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Happy parents playing with little kids riding in box
Investing Articles

2 FTSE 250 dividend growth stocks I’m considering for passive income

Paul Summers thinks the best dividend stocks to buy are those that consistently return more money to investors every year.

Read more »

Investing Articles

The Compass Group share price looks ready for growth after positive 2024 results

The Compass Group share price is up 4% today following positive full-year results. Our writer considers its prospects in 2025…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

How I plan to build an £86k yearly second income in the stock market

Is it realistic to aim for a substantial future second income by investing in high-quality shares? This writer firmly believes…

Read more »

Investing Articles

Here’s the Vodafone share price forecast up to 2027

Can anything stop the Vodafone share price slide? It's still early days for the company's turnaround plan, so we might…

Read more »

Investing Articles

Down 37%, here’s one of my favourite FTSE 100 bargain shares to consider

This FTSE 100 retailer's shares have collapsed in 2024. Despite tough trading conditions, is now the time to consider buying…

Read more »

Investing Articles

Which do I like best today, Nvidia or Tesla stock?

EV maker Tesla stock is on the up, while Nvidia growth is softening a bit. But they're both in the…

Read more »

Investing Articles

After jumping 15%, my favourite FTSE 250 stock looks set for the premier league

Games Workshop stock recently reached an all-time high, placing it within touching distance of promotion from the FTSE 250.

Read more »

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

1 top growth stock on my Christmas buy list!

Ben McPoland reveals one top-notch growth stock down 29% that he plans to stuff into his portfolio in time for…

Read more »