eToro’s top 5 stock picks for Q3 2020

All the way back in Q1, we saw the quickest stock market sell-off in history. In Q2, we have just witnessed the quickest recovery. It makes sense to question why, with the world economy almost at a standstill, we have seen stock markets make up nearly all of their losses for this year. Whilst, some sectors have even made gains with many of the world’s biggest tech stocks for example making new highs.

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We must also ask ‘what’s the alternative?’. Often we see a flight from risk assets during times of uncertainty, for example towards government bonds, gold, or even cash. However with interest rates basically at zero, there isn’t much of an incentive to hold cash, government bond yields are also at lows and yes, gold is at seven-year highs but it has no yield whatsoever. With the Federal Reserve and other central banks having pumped unprecedented levels of stimulus into the market and indicating they will continue to do so for as long as it takes, this has provided
almost a buffer to those looking at the stock markets.

At current levels, many stocks have very healthy yields provided they are still paying dividends and many investors are interpreting the messages from the Fed to mean that it won’t let the market fail. So why not keep the money in stocks? To be clear this definitely isn’t a ‘no risk pass’ to invest in stocks and a second wave of infections could derail this sentiment, but all things being equal it seems the risk appetite to stick with sticks over the current ‘safe-haven’ alternatives is still there for now.

Looking forward, we are now also seeing lockdown conditions begin to ease around the world and economic recovery is within sight. Investors should also be aware that the tide could turn very quickly should the Covid-19 infection rate begin to creep back up. As such, we have taken a look at a handful of stocks that could provide some resilience to the current conditions and/or some longer term prospects beyond the pandemic.

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