US companies still head up the list of the most bought ISA shares on Freetrade in August 2021. And after the virus-induced tech boom lifting US shares higher than any other global market, it’s easy to see why.
But what about life after lockdown?
Early signs show economic growth might not be the tailwind consumer-facing stocks were hoping for, as Americans tightened the purse strings in the second quarter of the year.
Despite restrictions easing in a lot of US states, personal consumption rose by 11.9% compared to the same period last year. That missed analyst expectations of 12.2%.
It might not seem like much of a difference but investors are likely to take note given consumer spending represents around two thirds of the US economy.
A big factor here is supply-chain bottlenecks brought on by shipping traffic jams, suppliers running at lower capacity due to Covid and price hikes as raw materials get more expensive.
If prices normalise and US consumers feel a bit more flush with cash by Christmas it could all be a different story but for now it’s a big area to watch.
Let’s see what Freetrade users were stocking up on in their ISAs over the month.
It’s important to highlight that this is a wrap-up, not a suggestion or recommendation that you buy or sell any of the securities mentioned.
Remember that everyone has their own goals and unique financial circumstances. These, along with your tolerance for investment risk and time horizon, should inform the mix of assets in your portfolio.
Our resource hub for investing in the stock market might be able to help make that blend a bit clearer for you and our guide on how to invest in stocks is a great start for first-time investors. And if you are still unsure of how to pick investments, speak to a qualified financial advisor.
AMC’s June share price boost might have petered out over July but August was all about a quiet resurgence.
The monthly flip-flapping between gains and losses is a sign the market just can’t make its mind up over the chain’s ability to spring back into life as lockdown restrictions ease.
Investors initially spied a huge opportunity for a backlog of Hollywood blockbusters to reel us all back into the cinema over the second half of 2021.
But that narrative is starting to unravel.
US box office receipts over the weekend were the lowest in more than two months. Gross ticket sales hit $61.6m, signalling the worst weekend for takings over the whole summer.
It’s actually been downhill for cinema footfall since the Black Widow premiere in early July.
In more normal times, that was the only weekend that wouldn’t have looked out of place, breaking $100m in ticket sales. Cinema goers breached that level every weekend over the summers of 2018 and 2019.
Away from short-term trends, there is still the fact that AMC came into the pandemic owing more than $4.5bn and over $450m in deferred lease payments.
The chain had already raised $1.3bn between April and June in part to help it buy new leases and "make investments to enhance the consumer appeal" of its current range of cinemas.
But, on the whole, investors’ enthusiasm may have been tested by the constant threat of share dilution.
It might have been one of the poster children of the flight to heavily shorted stocks earlier this year but investors hanging in for a more sustained turnaround could have to put up with a bit more dilution in the near term, just to keep the lights on.
The company needs to make the most of its current popularity. Raising money to expand and pay back debt is much easier to do when the shareholder base is engaged - something transitory meme stock investors could change in an instant.
It’s normally other firms’ shares investors are eager to get their hands on when they tap on the Robinhood app but the end of July brought the company’s own market listing.
It wasn’t all plain sailing though and the stock has had quite an energetic start to public life. To-ing and fro-ing during the start of August, the share is somewhere in the middle of those extremes now but the volatility might not be over.
Payment for order flow (PFOF) - the practice of market makers paying brokerage houses for directing clients’ trades their way - is having its legitimacy questioned.
And by none other than the chairman of the Securities and Exchange Commission (SEC) Gary Gensler. He said the agreement carries with it “an inherent conflict of interest”, which shook some Robinhood investors’ confidence, given PFOF is one of Robinhood’s largest revenue sources.
It’s a practice European investors might not be familiar with, as it is illegal in many parts of the world outside the US.
Gensler has previously suggested a complete ban of PFOF is among several options the regulator could introduce.
And despite rebuttals from Robinhood that it could adapt if legislation forced them to, investors have seemingly cooled off on the company’s potential future.
Tesla bumped higher at the end of August thanks to a couple of news items around the firm.
The first, more normal, catalyst was an Economic Times report suggesting Musk’s firm is trying to team up with car parts suppliers in India. It’s a signal the company is en route to launching in the country and investors are eyeing up the opportunity.
India has the third largest road network in the world, and around 300m vehicles on it, according to Statista.
The second piece of news, and one much more befitting of a sci-fi comic story, was the humanoid robot it revealed during its AI day.
Details were slim on the bot other than its purpose of helping with daily domestic tasks and the company’s aim to get testing in 2022.
That timeline might look a tad optimistic for those tracking the years of development behind the Boston Dynamics machines but Tesla has a habit of surprising its investors.
Cue discussions of whether the plans are a distraction from the auto side of the business or another potentially lucrative source of revenue.
‘Cost optimisation’ was a big driver of performance over Q2, so some might be uneasy at the thought of money being pumped into a brand new business area so soon after.
The stock still looks expensive on valuation grounds but, as Tesla’s supporters are probably tired of repeating, it sees itself as more than just an EV competitor.
The company’s goals of changing the way we treat and use energy are going towards vehicles now but the opportunity set is much more grand.
The recent results have clearly sated the market and the potential for whatever comes next is keeping long-term holders on board. If investors start to question that potential, such a high valuation could become a bit more of a problem.
Amazon shares took a dive at the end of July and couldn’t break that downward momentum until mid-August.
Sales growth slowed in the Bezos behemoth’s second quarter as physical stores began to reopen across the US.
In hindsight, shops getting back to business was always going to hit the online player’s stellar rise. But 27% growth over Q2 clearly started to worry investors who were getting used to rates above 40%.
It’s not a complete disaster though. Sales still hit $113.1bn, up from $88.9bn a year ago.
Most firms would kill for that kind of growth but it’s a reflection of Amazon’s rise and dominance that even such huge figures are a cause for concern in some corners of the market.
For a lot of investors it will be a signal to consider whether the pandemic-induced boost to trade is on its way out.
And that’s something Amazon’s mulling over too. The firm forecasted Q3 sales figures of $106bn to $112bn versus analyst expectations of $119.3bn, according to FactSet.
Big tech took a wobble earlier this year after investors started to think about just how much they could grow after the pandemic.
That prompted quite a big shift away from highly valued growth stocks into some of the unloved parts of the market that could do well if the economy recovers.
With that recovery far from concrete, as demonstrated by slower US economic growth, some of that tech draw has reappeared, bringing Amazon shares back up in August.
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Many thought it would be a distant memory by now but GME is still here.
And not only is the poster child of meme stock mania sticking around, late August gave it an extra boost.
The Reddit crowd is still bullish on the stock and renewed chatter (not to mention a mammoth chart-heavy write-up) over its potential from here prompted investors to lift the price.
Away from the chart tea leaves though there is a business to be run. And for those looking past the darting lines, the big hope lies in chairman Ryan Cohen’s plan to make the firm into the “Amazon of gaming”.
But just how possible is that objective?
Shifting models from the place gamers traded in their back catalogue of PS1 games, to an online-first ecommerce platform will take time and money. And, with Netflix announcing its foray into the gaming world, the space is looking increasingly crowded.
The first step for the turnaround plans seems to be in place though. GameStop recently said it had managed to pay off its long-term debt and its Q1 revenues came in ahead of expectations.
Investors will be hoping that’s a trend that keeps going. The firm has lost money in three of the last four quarters.
Allocating capital correctly and making sure Cohen’s plans are on course are two very important elements to keep an eye on now.
Investors have clearly been eyeing up the shares set to benefit from lockdown and, more recently, a return to normal over the past 18 months.
But, away from individual stock picks, the market is banking on the ability of the US to come out of the pandemic swinging.
It has been the best performing region since last year’s pandemic lows, thanks in large part to its thriving tech sector.
Valuations in the space have mostly risen since then so the opportunity for broad market exposure away from that tech concentration might be behind flows into S&P 500 ETFs like these.
Although investors should keep in mind just how dominant those firms are in the overall index.
Apple, Microsoft, Alphabet, Amazon, and Facebook now make up 23% of the S&P 500, according to S&P Dow Jones Indices. That might mean holders are slightly less diversified than they first thought.
Investors have favoured the income-distributing share class here. That can be useful to supplement an income or if you have regular expenses you need help with.
For those eager to rack up dividends over time and reinvest them to take advantage of the power of compounding, an accumulation share class (Acc.) could help.
According to Hartford Funds, an initial £10,000 invested in the S&P 500 over the 60 years from 1960 to 2020 would have grown to $627,161 in price terms, or $3,845,730 with dividends reinvested.
Dividends are incredibly important to the value of total returns.
Bit Digital awards itself the lofty description of “one of the world’s largest publicly-listed bitcoin mining companies”.
That label certainly got investors interested in early August. Shares in the crypto space got a jolt after SEC chair Gensler (back again) suggested he would be open to the creation of a Bitcoin futures ETF.
No sooner had his comments landed than several investment firms had filed intentions to launch those very products.
While firms in the space have their idiosyncrasies, the reality for now is that most are tied to the price of Bitcoin.
An upswing in the crypto’s price did Bit Digital a favour in August as a result. As did news the firm has struck a deal with Canadian crypto miner Digihost Technology.
As part of the accord, Digihost will supply power, management services, and property to Bit Digital to set up a 100 megawatt bitcoin-mining system for two years.
It might be that investors just want a bit more diversification in their lives or that a post-corona world has fewer sure-fire winners to attract their cash. Whatever the reason, it’s prompting a change of tack in many cases and directing Freetrade users to another broad-based index ETF.
Along with its S&P 500 cousin, VWRL was among the top ISA buys in August, maybe piquing investors’ interest after flirting with all-time highs.
But if diversification is really the goal here, investors should keep in mind what we’ve pointed out a few places higher.
Such is the sheer size of the US tech giants that over 60% of VWRL is allocated to companies in North America, with 23% of the fund exposed to the tech sector.
It might hold upwards of 3,600 global companies but size matters. The top 10 names, which include the likes of Apple, Microsoft and Amazon, account for more than 15% of the entire ETF.
On its own this might just be a good aspect to keep in mind. But if investors already hold tech and have bought an S&P 500 tracker as well as VWRL in hope of diversification they might be getting less than they’d hoped for.
China’s tech crackdown has not been kind to Alibaba.
There are barely any firms in the sector which haven’t felt the wrath of the CCP recently.
Two days after raising $4.4bn in the largest US IPO of any Chinese company since Alibaba in 2014, DiDi’s share price started to crumble.
Chinese regulators halted new user registrations and announced a probe into the company on cybersecurity grounds. Not long after, the authority told Chinese app stores to take DiDi down on concerns over data privacy.
Full Truck Alliance and Kanzhun, owner of Boss Zhipin, attracted similar attention days after listing.
The moves brought Alibaba into focus in particular, as it has had its own well-publicised run-ins with the government.
The much-anticipated Ant IPO was shelved late last year after founder Jack Ma appeared to throw shade on regulators. Alibaba was then fined $2.8bn in an antitrust investigation.
Investors have been trying to connect the dots between a potentially less US-friendly listing code for Chinese companies and what that means for firms already listed in the West. The result has been a pretty dire period for the Alibaba share price.
The company will be hoping it can shift attention away from the macro picture to its own bottom line. That’s because it does seem to be doing well as a business. Profits aren’t declining, there aren’t any big operational hurdles and growth is still strong.
It’s just that in a regime like China’s, shrugging off the top-down effect the government can have is just not possible.
Investors staying put are now focusing on the firm’s plans to boost its business in lower-tier cities in China. And they’ll also be looking forward to Singles' Day in November (11.11) which always tends to throw up dizzying revenues.
In the back of their minds though, they will still be eager to see peace made between the giant tech conglomerates and a government bent on reminding them who’s boss.
Past performance is not a reliable indicator of future returns.
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