This week has been one of, if not the most, exciting of the past 18 months for stock markets. Sharp movements on global stock markets have left a multitude of tradeable opportunities ready to be capitalised on – whether you’re a bull or a bear. Depending on your point of view, however, which stocks should you be looking at?

This week, US indices have reached ‘correction territory’ – 10% from their highs made earlier in January – while the UK has not been spared, itself briefly falling by over 10% from early January highs.

We’re now officially in correction territory, but what happens from here is still up for debate.

There are two schools of thinking: Correction or bear market.

Correction

Those who see this as a correction will believe this is just a temporary pause in the incredible bull run we’ve seen in the past 18 months. They believe that the weakness will eventually subside and that stock markets will continue their march higher.

These traders will likely be looking at riskier assets that have taken a heavy hit over the past week, which includes sectors such as Banks, base metals Miners and Housebuilders.

Fortunately, the UK 100 has an abundance of these names, including some of the largest examples in the world. Within the banking sector, Barclays and HSBC have global appeal, while Lloyds has a high street focus. All three report full year results within a fortnight.

A wealth of miners leaves ample choice for the risk-averse investor, with dual-listed companies such as the Australian Rio Tinto competing with South African names like Glencore, while the Housebuilding has a more distinctly UK feel with London-focused developers like Barratt Developments as well as regional builders like Persimmon.

All of these have been hurt in the past few sessions as investors debate whether UK and global growth may be slowed. But were these sell-offs overdone?

Bear Market

Those in the bear market camp will be expecting the downtrend to continue, with the potential for indices to fall beyond 20% from the highs.

These traders will be looking towards safe-haven assets in order to protect themselves from further risks, such as Gold, Precious Metal Miners and Defensives, non-cyclical companies.

Gold, a finite, non-yielding asset, is flocked to by investors when the times get tough safe in the knowledge that it will retain its worth to some degree. While the UK 100 only boats two precious metals miners – the gold-focused Randgold Resources and the multi-metal Fresnillo – there are a wealth of small-cap names on the London Stock Exchange.

Where the UK’s blue chip index is not lacking is Defensive names. An army of UK-focused and multinational companies give the defensive sector an international feel, while the range of specialisms leaves plenty of choice to diversify. Examples include utilites such as Centrica and United Utilities, tobacco companies like British American Tobacco, drinksmakers such as Diageo and defence manufacturer BAE Systems.

In a bear market, stocks such as these tend to outperform. But are we heading in that direction?

Even more importantly if you’re expecting a bear market is having the ability to go ‘short’ on stocks, where you can effectively profit from falling markets.

Thankfully, Accendo Markets offers a shorting facility, alongside tailor-made research developed to aid informed investment decisions. We’re here to help you navigate financial markets no matter what direction they’re heading in, so there’s no reason for you not to try it for yourself by signing up here to have it delivered directly to your inbox.

James Matthewson, Trader, 9 February 2018