Sterling Savvy

Ben Laidler from eToro: Questions about the stock market

Ben Laidler from eToro Questions about the stock market

Today we’re chatting with Ben Laidler who is a Global Markets Strategist at eToro.

He has covered global equities as both a fund manager and investment strategist since 1994.

Based in the UK now he has also worked in the US and emerging markets.

We at Sterling Savvy wanted to ask Ben some of our pressing questions in a quick-fire round style.

So let’s jump right in!

Should investors be weary now that the S&P 500 and Dow Jones are at all-time highs?

US stocks have gone up 70% of the time, looking back over the past 100 years. So all-time highs are the norm, not the exception, and nothing to be feared. Markets also typically trend, so new highs beget new highs, unless the fundamentals decisively change.

And this rally is fundamentally well-supported. The US earnings recession ended in Q3 last year and profits are set to rebound to 10% growth this year. Whilst coming interest rate cuts will both support economic growth as well as help keep stock market valuations high.

Is it better to invest directly in Bitcoin, or gain exposure through an ETF?

ETFs will be more attractive to most new investors. It’s well-tested, joining over 7,000 ETFs holding $10 trillion of assets globally.

It’s cheap, with the two largest new ETFs having management fees of only 0.25%. They are regulated and trade on traditional exchanges.

They are also a lot simpler. Available to be instantly traded through any investment platform or your financial adviser. Compared to investing directly.

Which may require creating a wallet, finding a crypto exchange, connecting to your bank, and safeguarding your security keys.

Check out our guide on how to buy Bitcoin in the UK.

There’s an expectation of interest rate cuts in 2024. What will this mean for the stock market?

There are two ways to make money in stocks. From higher earnings and higher valuations, and interest rate cuts help both.

Lower interest rates boost the economy and ultimately company profits. While also increasing the ‘present value of future cash flows’ justifying higher valuations.

Markets also discount future events today. So some of the benefits of coming interest rate cuts are already being seen in markets now. In higher stock prices, and also in lower bond yields that feeds into things like home mortgage and car loan rates.

Is the hype surrounding AI stocks overblown?

Maybe not. The hype is becoming a profits reality. AI poster child NVIDIA’s valuation fell last year, despite its 240% rally, as its profits outlook improved even more. The so-called Magnificent 7 stocks are growing profits 50% whilst the other S&P ‘493’ profits are down 10%. 

But it’s early days and companies will have to keep delivering profits. The cautionary tale is internet networking equipment giant Cisco, the ‘picks-and-shovel’ equivalent from the 90’s dot-com boom.

Its stock is still down 20% versus 24 years ago despite growing profits 7-fold since its valuation got so stratospheric in the tech bubble.

What’s the best way for a risk-averse investor to gain exposure to the stock market?

Get started, go broad, cheap, and go home. Markets reward ‘time in the market’ so the sooner you start the better. Dollar-cost average, by making regular and consistent contributions, if you are worried about current market risks. But do start. 

Buy a selection of ETFs that give you a low-cost and diversified exposure to global markets, across, say, the US, other developed markets (EAFE), and emerging markets. 

And then wait. US stocks, for example, go up 70% the time, but this rises to over 90% if you hold for longer periods. You also benefit from the compounding of returns, the so-called ‘eighth wonder’ of investing.

Meaning, for example, £1,000 invested today in a market that rises 10% a year for 10 years turns into £2,600.

Is holding individual stocks risky for inexperienced investors?

There is no return without risk. It comes with the territory. But it’s important to manage it. To recognise one’s investment knowledge and objectives. A sizable group of well-diversified large-cap individual stocks held for the long term need be no riskier than many of the ETFs out there. 

But this would have a completely different risk profile and costs from, for example, holding a small number of sectorally-concentrated small and mid-cap stocks and trading in and out of them frequently.

The UK and US are set to go to the polls this year. How do elections affect the stock market?

Election impacts are typically overdone for stock markets. They are one of many drivers, alongside economic growth, interest rates, geopolitics, company profits, valuations, technological change, and industry dynamics. We can also overestimate a politician’s ability to effect change.

A study of US elections shows the election year is typically positive for stock markets as the incumbent tries hard to get re-elected. What impacts markets are election surprises it did not see. This is less likely this time.

The two US candidates are very well-known and the US Congress is gridlocked. Whilst in the UK Labour already holds a commanding poll lead.

Are the markets overheated considering so many advanced economies are on the brink of a recession? 

The US economy is growing over 3%, above its long-term average, and S&P 500 profits near 10%. This is as far from recession as we have seen in a long time.

Whilst US interest rates are a big insurance policy and could be cut hard and fast if needed, with inflation already fallen to 3%.

This is supporting the stock market outlook.

Europe is a different matter, with Germany in recession and most others getting close. Whilst pan-European companies are in a -10% profits recession. But forward-looking markets see this as a trough level, with interest rate cuts to come, and valuations 35% cheaper than the US.

Do emerging markets offer a greater chance of return when compared with British and American markets?

Yes, they are faster growing, with both GDP and earnings growth 2-3 times that of developed markets. With valuations 40% cheaper than the US, but not versus the bargain-basement UK. And very out-of-favour having lagged tech-driven US stocks for the past decade. They would benefit from a weaker US dollar, lower interest rates, and stronger commodities. 

But a lot depends on China. The world’s second-largest economy is a quarter of emerging markets and has been a huge drag.

Its stock market has fallen for three years and the world’s worst performing big market last year and this. Its economy has surged 14-fold in the past 25 years, but its stock market is flat.

What are the benefits of fractional shares?

The growth of fractional share ownership since 2019 has been a big unsung driver of the rise of the retail investor, alongside online investment platforms, free trading, and ETF growth. It has made investing more accessible, lower cost, and encouraged diversification.

Our global investor survey shows the median under-35 DIY investor has a portfolio below $10,000, making it near impossible to run a diversified portfolio without fractional shares or ETFs. Consider the priciest S&P 500 stock is NVR at $7,300 and in Europe, Givaudan at equivalent to $3,300.

Finally, any lasting insight/tips for investors & traders in the UK, considering the current economic climate?

Economies are not stock markets. We all use this short hand but it can be very wrong. Positively, for UK investors. For example, the FTSE 100 was 2022’s least-worst-performing global market, despite having some of the worst GDP growth and inflation. 

As nearly three-quarters of FTSE 100 sales come from the rest of the world, its financials and commodity-heavy sector composition is very different from the economy.

Great, very insightful for the readers at home!

Ben, it’s been a pleasure speaking to you today, thanks for sharing all your knowledge and expertise.

Important links:

Ben Laidler, Global Markets Strategist at eToro – LinkedIn

Read our complete eToro review and check out our roundup of the best trading apps in the UK.

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Will Fenton is the founder of Sterling Savvy. He is a personal finance expert and writes about trading, investing, budgeting, and other financial topics.

Along with his education in Economics & Finance, he has experience working in the financial services industry in London working for one of the UK’s leading financial companies, “a trustworthy and respected provider of news, education and market analysis for the everyday investor”.

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