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Although closing Friday on a down note, stocks rallied sharply this week as the coronavirus, earnings and employment data took most of investors’ attention (along with the wild swings in Tesla). But among things that may have gone overlooked, two U.K. companies that could be surfing the sustainability wave came into view.
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The Trump administration kept coal as a talking point. And the Fed indicated that while the sidelines is still where it feels most comfortable, the impact of the coronavirus isn’t being ignored.
Here are three things that flew under the radar this week.
1. Will the Plastic Purge Create a Cardboard Boon?
With environmental and sustainability considerations playing an ever-greater role in the decisions of big institutional investors, it’s worth taking a moment to think how all those big passive bucks could move a stock that checks the right boxes.
Boxes being the operative word. Cardboard boxes, to be precise.
Two London-listed stocks offer interesting exposure to one of the great megatrends of the coming years: the shift away from plastic packaging.
Irish-based Smurfit Kappa (LON:SKG) and U.K.-based DS Smith (LON:SMDS), which is also Europe’s largest recycler of paper, both stand to benefit.
Smurfit stock rose more than 8% this week on the back of results that showed margins widening and debt (a perennial concern, given the cyclicality of the business) falling to the middle of its target range. While the breadth of its operations throws up a fair amount of problems – in the last two years it was expropriated in Venezuela and was fined $136 million for anti-competitive behavior in Italy – its core operations in Europe, the U.S. and emerging markets are solid.
DS Smith is arguably the more stable business by virtue of its concentration on fast-moving consumer goods, less prone to downturns than discretionary packages delivered by Amazon (NASDAQ:AMZN). It’s also less exposed to exotic places like Venezuela. It stands to be a big beneficiary of initiatives like that announced by U.K. supermarket chain Sainsbury’s, which promised last week to throw 1 billion pounds at getting plastic out of its supply chain, initiatives that are likely to become ever more common as the revolt against plastic spreads.
2. U.S. Sends $64 Million Canary Into Coal Mines
It sounded just like the kind of thing that would have gotten green groups all up in arms — a coal-first energy policy that conjures images of more carbon emissions in a world that needs exactly less.
Yet the U.S. Coal-FIRST — yes, in caps — initiative floated by Energy Secretary Dan Brouillette was clever enough in language that it got the attention it wanted without the bad press.
What Brouillette really announced was a $64 million “Flexible, Innovative, Resilient, Small, Transformative” initiative to develop the coal plant of the future needed to provide secure and reliable power to the U.S. grid.
“Coal is a critical resource for grid stability that will be used in developing countries around the world well into the future as they build their economies,” Brouillette said in a statement issued by the Department of Energy.
While from the text we could see where the energy secretary was going, those hearing the policy the first time — an announcement Brouillette chose to make during a speech at the Atlantic Council in Washington Friday morning — would be forgiven for thinking that President Donald Trump was trying to throw coal miners yet another lifeline ahead of his November reelection bid.
As Keith Johnson at foreignpolicy.com observed in an October post, “Trump came into the White House vowing to end the Obama administration’s so-called war on coal and Make Anthracite Great Again.”
“Instead, Trump is overseeing a cascading collapse of America’s coal industry, a trend that could have political consequences for him in the 2020 U.S. presidential election,” Johnson wrote, noting that there were eight bankruptcies filed by coal mining companies last year alone.
To be sure his words weren’t taken out of context, Brouillette said soon after announcing his Coal-FIRST policy that “the efforts we’re undertaking is not to subsidize the industry and preserve their status, if you will, as a large electricity generator.”
“It is simply to make the product cleaner and to look for alternative uses for this product or this commodity,” he said. “No one is going to deny the fact or argue with the point that coal as a percentage of U.S. electricity generation is declining and will probably continue to decline.”
“The evolving U.S. energy mix requires cleaner, more reliable, and highly efficient plants,” Steven Winberg, the DOE assistant secretary for fossil, added in the statement. “Technologies developed for the Coal FIRST initiative will lead to just that — reliable, highly efficient plants with zero or near-zero emissions.”
3. Fed Factoring in Coronavirus
For months, traders have been eager to find out what additional factors, apart from the pace of inflation, will drive a material risk to the Federal Reserve’s outlook and force it off the sidelines. But Fed Chairman Jerome Powell has given little away.
That all changed early this week when the Fed chief identified a new risk to the central bank’s outlook on the economy: the coronavirus.
“More recently, possible spillovers from the effects of the coronavirus in China have presented a new risk to the outlook,” Powell said in the latest monetary policy report, submitted to Congress on Friday
“The recent emergence of the coronavirus, however, could lead to disruptions in China that spill over to the rest of the global economy. Amid weak economic activity and dormant inflation pressures, foreign central banks generally adopted a more accommodative policy stance,” the Fed chairman added.
The Fed’s worries about the risk to its outlook are not without merit, with analysts predicting that the virus will do most of its damage in the first quarter of this year.
Goldman Sachs said the impact of the disease would lower global GDP by up to 2% in the first quarter, 1% directly from China and about 1% from spillover effects.
Whether the impact of the virus will represent a material risk to the U.S. central bank’s outlook remains a hot topic of debate.
“The near-term impact is quite large,” Goldman Sachs said. “What happens to 2020 as a whole really depends on how quickly the episode is brought under control.”
The Federal Reserve fingerprints are all over the more-than-decade-long bull run in stocks. Its efforts to steady the repo market, which began in October, have coincided with a sharp upswing in stocks. But those hoping for the Fed to act sooner rather than later could be left disappointed.
“The new coronavirus outbreak abroad has created some new risks to the near-term external growth backdrop, but there is little apparent reason for monetary policymakers to consider rate cuts at the moment, and we continue to expect the Fed to sit on the sidelines through 2020,” RBC said in a note.
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To evaluate brokers, you should look at the following factors:
>>> Account Minimum
>>> Account Fees
>>> Your Trading Style and Tech Needs
Look at commissions on the investments you’ll use most… Brokers generally offer a similar menu of investment options: individual stocks, options, mutual funds, exchange-traded funds, and bonds. Some will also offer access to futures trading and forex (currency) trading.
The investments offered by the broker will dictate two things: whether your investment needs will be satisfied, and how much you’ll pay in commissions. Pay careful attention to the commissions associated with your preferred investments:
Individual stocks: You’ll typically pay a per-trade commission of $4 to $7. Some brokerages also offer per-share pricing.
Options: Options trades often incur the stock trade commission plus a per-contract fee, which usually runs $0.15 to $1.50. Some brokers charge only a commission or only a contract fee.
Mutual funds: Some brokers charge a fee to purchase mutual funds. You can limit mutual fund transaction costs or avoid them completely by selecting a broker that offers no-transaction-fee mutual funds. (Mutual funds also carry internal fees called expense ratios. These are charged not by the broker, but by the fund itself.)
ETFs: ETFs trade like a stock and are purchased for a share price, so they are often subject to the broker’s stock trade commission. But many brokers also offer a list of commission-free ETFs. If you plan to invest in ETFs, you should look for one of these brokers.
Bonds: You can purchase bond mutual funds and ETFs at no charge by using no-transaction-fee mutual funds and commission-free ETFs. Brokers may charge a fee to purchase individual bonds, with a minimum and maximum charge.
Pay attention to account minimums… You can find highly ranked brokers with no account minimum. But some brokers do require a minimum initial investment, and it can skew toward $500 or more. Many mutual funds also require similar minimum investments, which means even if you’re able to open a brokerage account with a small amount of money, it could be a struggle to actually invest it.
Watch out for account fees… You may not be able to avoid account fees completely, but you can certainly minimize them. Most brokers will charge a fee for transferring out funds or closing your account. If you’re transferring to another broker, that new company may offer to reimburse your transfer fees, at least up to a limit.
Most other fees can be sidestepped by simply choosing a broker that doesn’t charge them, or by opting out of services that cost extra. Common fees to watch out for include annual fees, inactivity fees, trading platform subscriptions and extra charges for research or data.
Consider your trading style and tech needs… If you’re a beginner investor, you probably won’t need extras, like an advanced trading platform. But you may want an education and a little hand-holding. This could include videos and tutorials on the broker’s website, or in-person seminars at branches. Many brokers offer these services free to account holders.
Active traders, on the other hand, will want to look for a brokerage that supports that kind of frequency. That includes weighing a broker’s trading platforms, analysis tools, research and data offerings in addition to commissions — including discounts for high-volume traders — and fees.
Plenty of high-quality online brokers offer free demo access to trading platforms.
Take advantage of promotions… Online brokers, like many companies, frequently entice new customers with deals, offering a number of commission-free trades or a cash bonus on certain deposit amounts.
It isn’t wise to choose a broker solely on its promotional offer — a high commission over the long term could easily wipe out any initial bonus or savings — but if you’re stuck between two options, a promotion may sway you one way or the other.
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