While the global economy struggles with the fallout of Covid-19, financial markets are showing signs of recovery, and this means there are opportunities for investors. So, for those with an optimistic outlook, we are taking a look at what is driving the S&P 500, NIO and XRP.
The S&P 500, the index tracking the largest listed US companies, is making headlines as it flirts with a new all-time high, moving past the 3,386 it set back in February. The index launched in 1957, and even though there have been some rocky periods since, it is remarkably creeping towards new territory in the same year as Covid-19. In a few months it has been able to recover from a trough of 2,287 on March 23rd.
But why? Many analysts have pointed to this recovery being fueled by a select few tech giants (Apple, Alphabet, Amazon, etc.), which are powering the whole index upwards because of their size, even though some other constituents are having a much more difficult time. There is no doubt these companies have had a good 2020. Despite the fact that the coronavirus has disrupted both business and everyday life for billions around the world, the demand for tech products and services has been unparalleled.
For example, with nearly entire populations living under lockdown, the use of Amazon’s home delivery and entertainment services has skyrocketed. Amazon’s share price has rallied to the point that the company’s owner (Jeff Bezos, the richest man in the world), saw $10 billion added to his net worth in one day.
Even though the picture may be less rosy for other sectors and the wider US economy, some equity investors are taking confidence from this rally and analysts at Goldman Sachs believe the S&P 500 could even close around 3,600 by the end of the year. However, there is still the US election to face before then…
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To buy a single share in Tesla would set an investor back over $1,700, based on today’s market price, signalling the company’s hold on the growing electronic vehicle market, which is gathering momentum.
Fortunately, there are other electronic vehicle manufacturers and, of them, Chinese company NIO is attracting a huge amount of interest. In fact, Piper Sandler analysts recently called it the ‘Tesla of China’. While it can be easy to get carried away about companies in new areas of tech, NIO is already growing and is well located to capitalize on China’s growing interest in electric vehicles. NIO has a healthy balance sheet and is experiencing strong demand for its vehicles, reporting a surge in deliveries in the second quarter to 10,331 (nearly triple the same quarter in 2019).
NIO is anticipating further growth and registered a US ADR in 2019 to raise more capital. This year, its US dollar share price rallied from $3.71 on January 2nd to $13.63 on August 17th. NIO hasn’t (yet) stated an intention to do battle with Tesla in its key markets, but the Chinese firm is extremely well-placed in its homeland for future growth.
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XRP is a crypto asset used by the payments startup Ripple, and there is a definitive number of coins in total – 100 billion to be precise. Ripple owns more than half of the total supply, and uses the token in one of its cross-border remittance platforms known as ODL.
While investors are spoiled with choices when it comes to cryptocurrencies, Ripple says demand for XRP has proven robust. Ripple CEO Brad Garlinghouse recently revealed that since launching ODL in October 2018, around $2 billion in XRP has been processed around the world.
Ripple attributes the popularity of XRP to its use in cross-border payments. The firm accepts fiat currency (pounds, dollars, euros – anything that has been legitimized by a government) with the equivalent in XRP then being sent to a corresponding exchange in another country before being converted back to actual money again. As the world has been forced to become more digital in the past few months, reliance on XRP has accelerated and the value has responded. On February 14th, XRP had a price of $0.32 and by March 15th it had fallen to $0.14. However, it has since climbed back up in price and as of August 17th is priced at $0.31.
Ripple is building on this success and is introducing a new app that would allow for more messaging between XRP users, with a ledger being integrated into mainstream messaging apps. A step like this could help break down the barriers some people have to accessing cryptos and embracing a new digital world.
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