The UK stock market has been surging upwards. For example, the FTSE 100 index of Britain’s largest public companies is flirting with its highest-ever level. It’s around 7,844, as I write on 13 January, not far from the 7,877 it closed at on 22 May 2018.
But a handful of the largest constituents drive the index because of weighting by market capitalisation. Big names dominate the Footsie, such as AstraZeneca, Shell, HSBC Holdings, Unilever, Rio Tinto, BP and Diageo. And if stocks like those do well, the index does too.
Broad strength in the market
But that’s not the whole story regarding the London stock market. Many smaller companies have also seen strong stock performance lately. And firms in the retail sector keep surprising the market with positive trading updates. Recent examples include Greggs, Shoe Zone and Next. And it’s easy to see why that when upbeat results have been unexpected, share prices rip higher in a catch-up move.
However, retail isn’t the only sector that’s doing better than many investors expected. And upturning share prices seem to be everywhere right now. As is often the case with the stock market, there’s a good argument to be made that last year’s moves lower went too far. Just as moves higher can over-extend. The market is notorious for over-shooting in both directions.
Yet despite recent stock price and business progress from many companies, there’s no shortage of bearish voices around. James Davey from Reuters said last week that “the consumer outlook for 2023 is poor.” And he pointed out that the Office for Budget Responsibility recently predicted “the biggest squeeze on living standards since records began in the 1950s.”
There’s always something to worry about
However, I reckon observations about the general economy are likely already baked-in to share prices. And stock market investors tend to look ahead. Indeed, there’s a good chance share prices are trying to anticipate events beyond immediate challenges. Therefore, I’m optimistic regarding stocks and shares over most timescales right now. And, to me, it seems likely we could be entering an enduring bull phase for the UK stock market.
I may be wrong, but commodity and container prices have been declining for some time. And there’s a decent chance expectations of lower inflation ahead will be met. Perhaps the recession in the UK economy may not prove to be as deep as many fear.
A seasoned investor once said to me that the bearish arguments always seem more intelligent than the bullish ones. And it’s always possible to talk ourselves out of investing in stocks and shares at all. But I think investing with optimism can lead to satisfactory outcomes. Indeed, there’s always a bearish argument to contend with. But stock markets are known for climbing a wall of worry.
So I’m choosing to trust the recent strength in businesses and the London stock market. And, right now, I’m working hard to seek out potentially enduring stocks to hold for the long term.