- The stock market remains turbulent amid fears of a looming recession, concerns about pension funds and ongoing fallout from the mini-budget
- The FTSE 100 fell below the 7,000 barrier at the end of September for the first time in six months
- The index is still far from the lows seen during the pandemic – and volatility could present opportunity
Derren Nathan, Head of Equity Research:
“Right now, good economic news feels like a very distant memory. That’s had a knock-on effect on the stock market. The FTSE 100 fell below the 7,000 barrier at the end of September for the first time in six months.
But to put this in context, we’re only 13% below the all-time high of 7903.50 seen in May 2018. We’re also still well above the low points that correspond with the most notable crises of this century.
At the start of the Iraq War in March 2003, the index touched 3277.50. The ‘Great Recession’ of 2007-2009 saw the FTSE hit a floor of 3460.71 in March of 2009. Most recently the Covid-19 pandemic caused the FTSE 100 to bottom out at 4,898.79 in March 2020.
With the US and the UK not officially in recession, there could be some large swings in the months ahead. Remember though, past performance isn’t a guide to the future.
Three shares that could perform well in a volatile market
1) DS Smith
DS Smith is a stock that at first glance doesn’t sound too exciting. It makes cardboard boxes. But its extensive range of sustainable corrugated cardboard solutions has an enviable customer list that includes Amazon and Tesco. Its environmental credentials (its products are now 100% recyclable) have also earnt it a rubber stamp from the Ellen MacArthur Foundation, an opinion leader on the transition to the circular economy.
DS Smith is exposed to structural growth drivers that are linked to more than just broader economic growth. As well as a shift towards sustainability and plastic replacement, e-commerce still has the potential to outgrow regular retail, with some markets like Italy, Spain and France still underpenetrated.
2) PepsiCo
PepsiCo’s flagship cola is truly a giant among iconic brands which include a huge range of food and beverage household names like Walkers Crisps, Quaker Oats and Tropicana. Growth in excess of that of the economy seems hard to come by, but the group’s expecting 12% underlying revenue growth this year following a recent upgrade. Its diversity in terms of brands is also matched by its wide geographical reach. It’s a true global player.
Pepsi very much as a long-term investment with the potential to generate relatively stable returns, rather than spectacular growth. And with that, comes some shelter against volatility.
3) GSK
Following the spin-off of its consumer health arm Haleon, GSK now offers a purer exposure to speciality medicines, which command premium prices. This is expected to help push operating margins up to close to 30% in 2023.
We see healthcare as relatively defensive in the current environment, and not massively dependent on consumer spending power. A wide pipeline provides diversification and potential for the next blockbuster. But drug discovery is a high-risk pursuit, and no approvals are ever guaranteed.”
