How Have the FTSE 100 Cyclicals Reacted to The Covid-19’s Effect on the UK Economy?

Coronavirus has given one of the most devastating blows to the health systems as well as economies all across the globe, and UK is no different. While the British stock markets reacted negatively in tandem with their global peers, but in the last few days, have shown certain signs of recovery. This up and down movement is primarily driven by the different developments taking place. This volatile movement basically means that stock markets tend to follow the underlying economic cycle, which includes the expansion, peak, recession, and recovery stages. Stocks from certain sectors that are extremely connected to the overall macroeconomic environment, generally tend to respond to these cycles much more than other sectors. Below, we will discuss three sectors in the United Kingdom, where the business cycles are a reflection of the overall economy and analyse the performance of a few stocks during this covid-19 phase.

Banking and Financial Services

Banking and Financial Services sector is one of the most sensitive business, especially in the United Kingdom. Whenever there is a period of any crisis, especially economic crisis, banking stocks are the first to get affected, as any kind of support for the overall economy, tends to be passed on through the banking sector. Changes such as ease of credit access, more debt funding for organisation and cut in the bank rate directly have an impact on this sector and the companies operating in it. The blue-chip stocks from this sector generally move in the coherence of the market. It is also interesting to note that the recovery of some of the key stocks in the industry has also fallen in line with the marginal recovery of the overall FTSE 100 Index The following are the examples of two such companies.

BARC Stock Price Performance

At the time of the close of markets on 17th April 2020, the Barclays Plc stock was at a price of GBX 90.71 per stock on the London Stock Exchange market, an increase in the value of 4.17 per cent or GBX 3.63 per stock, compared to the previous trading day which was reported to be at GBX 87.08. The company’s market capitalisation was estimated to be at GBP 15.092 billion, with regards to the current market price of the company's stock. The company’s stock price has provided a negative return of approximately 48.24 per cent in the last 3 months, compared to FTSE 100 Index’s 3 months negative return of 24.60 per cent. Similarly, the company’s stock price has yielded a positive one month return of 3.37 per cent, in comparison to the FTSE 100 Index’s positive one month return of around 9.29 per cent.

HSBA Stock Price Performance

At the time of the close of markets on 17th April 2020, the HSBC Holdings Plc stock was at a price of GBX 414.35 per stock on the London Stock Exchange market, an increase in the value of 2.16 per cent or GBX 8.75 per stock, compared to the previous trading day which was reported to be at GBX 405.60. The company’s market capitalisation was estimated to be GBP 82.600 billion, with regards to the current market price of the company's stock. The company’s stock price has provided a negative return of approximately 30.24 per cent in the last 3 months, compared to FTSE 100 Index’s 3 months negative return of 24.60 per cent. The company’s stock price has yielded a negative one month return of 16.23 per cent, in comparison to the FTSE 100 Index’s positive one month return of around 9.29 per cent.

Comparative Stock Price Performance of BARC and HSBA

(Source: Thomson Reuters) Daily Chart as on 17-April-2020, after the closing of the London Stock Exchange Market

Retail

Retail sector may not be very volatile when it comes to macroeconomic scenarios, but it does get affected by general situations prevailing in the country. Situations such as big sporting events, or a healthcare emergency generally tend to impact that sector, as people increase or decrease their spending, depending on the scenarios. In the UK itself, during the 2018 FIFA world cup, retail sales went up significantly as people were buying stocks heavily, while during 2019, the situation was grim due to high rent and lease costs and later, with the whole Brexit fiasco. If we talk about economic cyclicity, Retail sector stocks are cyclical in their own way and generally tend to respond to the healthcare crisis as well and reflect the confidence of the shareholders at such a time. The following are the examples of two such companies trading on the London Stock Exchange.

TSCO Stock Price Performance

At the time of the close of markets on 17th April 2020, the Tesco Plc stock was at a price of GBX 238.10 per stock on the London Stock Exchange market, an increase in the value of 0.98 per cent or GBX 2.30 per stock, compared to the previous trading day which was reported to be at GBX 235.80. The company’s market capitalisation was estimated to be GBP 23.093 billion, with regards to the current market price of the company's stock. The company’s stock price has provided a negative return of approximately 4.22 per cent in the last 3 months, compared to FTSE 100 Index’s 3 months negative return of 24.60 per cent. Similarly, the company’s stock price has yielded a positive one month return of 5.40 per cent, in comparison to the FTSE 100 Index’s positive one month return of around 9.29 per cent.

NXT Stock Price Performance

At the time of the close of markets on 17th April 2020, the Next Plc stock was at a price of GBX 4435.00 per stock on the London Stock Exchange market, an increase in the value of 3.69 per cent or GBX 158.00 per stock, compared to the previous trading day which was reported to be at GBX 4277.00. The company’s market capitalisation was estimated to be GBP 5.686 billion, with regards to the current market price of the company's stock. The company’s stock price has provided a negative return of approximately 36.08 per cent in the last 3 months, compared to FTSE 100 Index’s 3 months negative return of 24.60 per cent. Similarly, the company’s stock price has yielded a positive one month return of 3.72 per cent, in comparison to the FTSE 100 Index’s positive one month return of around 9.29 per cent.

Comparative Stock Price Performance of TSCO and NXT

(Source: Thomson Reuters) Daily Chart as on 17-April-2020, after the closing of the London Stock Exchange Market

Travel and Leisure

The travel and leisure sector is not just cyclical in nature, as displayed by the current covid-19 crisis, but is purely seasonal. The tourism industry depends on their go-to seasons, as specific locations tend to attract tourist at a specific time, and the entertainment industry, generally does well, whenever there is a big event around the corner and is silent at other times. Covid-19 is truly testing time for the sector as most households in the major economies have been put under lockdown, and it remains to be seen if the sector and its business will ever fully recover from this crisis. The following are the examples of two such companies trading on the London Stock Exchange

CCL Stock Price Performance

At the time of the close of markets on 17th April 2020, the Carnival Plc stock was at a price of GBX 912.00 per stock on the London Stock Exchange market, an increase in the value of 5.95 per cent or GBX 51.20 per stock, compared to the previous trading day which was reported to be at GBX 860.80. The company’s market capitalisation was estimated to be GBP 1.571 billion, with regards to the current market price of the company's stock. The company’s stock price has provided a negative return of approximately 75.41 per cent in the last 3 months, compared to FTSE 100 Index’s 3 months negative return of 24.60 per cent. The company’s stock price has yielded a negative one month return of 3.25 per cent, in comparison to the FTSE 100 Index’s positive one month return of around 9.29 per cent.

EZJ Stock Price Performance

At the time of the close of markets on 17th April 2020, the EasyJet Plc stock was at a price of GBX 638.80 per stock on the London Stock Exchange market, an increase in the value of 8.57 per cent or GBX 50.40 per stock, compared to the previous trading day which was reported to be at GBX 588.40. The company’s market capitalisation was estimated to be GBP 2.337 billion, with regards to the current market price of the company's stock. The company’s stock price has provided a negative return of approximately 56.77 per cent in the last 3 months, compared to FTSE 100 Index’s 3 months negative return of 24.60 per cent. Similarly, the company’s stock price has yielded a positive one month return of 7.22 per cent, in comparison to the FTSE 100 Index’s positive one month return of around 9.29 per cent.

Comparative Stock Price Performance of CCL and EZJ

(Source: Thomson Reuters) Daily Chart as on 17-April-2020, after the closing of the London Stock Exchange Market


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