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How I’d invest £10,000 in the stock markets today

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There are years when I have profited from picking individual stocks for my investments, and there are others where I was best rewarded by tracking big-picture trends. The next few years could well serve as a good example of this second investing strategy. 

Here are three ways I am keeping track of these macro trends to try and get some great returns on investments. 

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#1. Growth comes back as the pandemic recedes

Last quarter, the UK economy grew by a whole 22% from the year before. Much of this was base effect. In 2020, there was hardly any economic activity during the April-June quarter. But it also shows how well the economy is bouncing back. 

While many stocks have seen a significant rise because of the reopening of the economy, some are still lagging behind. These include travel stocks, from airlines to coach operators. I think as the pandemic recedes further, these could be the next set of gainers. 

#2. Inflation is back

The big looming risk from rapid growth is inflation. The UK’s inflation rate has already risen above 2%, which is the Bank of England’s comfort level. Companies have talked about rising cost pressures in their recent statements as well. If the rise is sustained or gets out of hand (or both), then there could be a pullback in growth for at least some sectors. 

However, for now, there are others that will continue to benefit. These include oil stocks, which have already shown gains from rising oil prices. Also, luxury goods’ stocks could gain because these brands’ customers are unlikely to be terribly price sensitive, so they can pass on price increases. 

#3. Watch infrastructure

Infrastructure is the one sector that is expected to stimulate both growth and inflation in the coming years. We have already seen how much commodity stocks have benefited from China’s public spending last year, which was driven by the government’s attempts to boost the economy dragged down by coronavirus. Now, we should prepare for Infrastructure Spending 2.0. And this will come from the US. This was one of Joe Biden’s election promises and now this huge spending is well on its way to becoming a reality. 

This could positively impact a range of stocks from construction companies to industrial metal miners. Also, it could have the second round effect of raising overall growth, which would benefit other sectors too. 

My takeaway

With this backdrop, it does appear likely that we are headed for better times. Even inflation, which can be a downer for many stocks, can be managed well at this time.With £10,000 to invest in the stock markets, I’d divide my purchases along these three broad categories. These could result in capital gains for me and also hedge my portfolio against macro risks, like price rises.

However, I am still watching out for the pandemic. If it makes a comeback, no one can predict what happens next. I am optimistic that it can be handled for now, however. 

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Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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