Today’s Gross Domestic Product (GDP) figures surprised many. And by that, I mean in a good way. As a reminder, GDP is a measure of the economic activity of a country or region.
Watching company news
As a lifelong investor myself, I do keep one eye on the data released periodically by the Office for National Statistics (ONS) regarding GDP. That’s even though the performance of the national economy isn’t my first priority when investing. The important news is flowing from the businesses I’m holding or watching.
And there’s a good reason for such an approach. Successful investors such as billionaire Warren Buffett tend to find investable stocks when the economic outlook is murky. So poor economic data isn’t a good reason to avoid share ownership. In fact, it’s during troubled times that it’s possible to find some of the best businesses trading with the fairest valuations. And when I’m holding stocks for the long haul, a fair price is always a good start.
Meanwhile the bear market we’ve had recently has been a good time to look for decent long-term stock opportunities. But it’s fair to say the investment community has been waiting for clues about how bad a downturn in the economy may become.
And today’s figures are quite robust considering all the negative sentiment around. The ONS estimates GDP grew by 0.5% in May 2022 after a decline of 0.2% in April. And, scoping back, the rise was 0.4% in the three months to May and a decent-looking 3.5% in the 12 months to May.
The ONS estimates monthly GDP is now 1.7% above its pre-coronavirus pandemic levels of February 2020. And I reckon this all adds up to the economy being in better shape than many people realise right now.
I’m bullish about shares
However, some voices are sounding a note of caution. For example, Ben Laidler, Global Markets Strategist at social investment network eToro, said the resilience of the UK economy is “a welcome surprise”. But he thinks “stiff challenges remain”. And to illustrate the point he mentioned that UK natural gas prices have risen by 60% in the past month. He also reckons the country is in a race between peaking inflation and recession, “as rising interest rates take a bigger toll.”
But I’m optimistic about the outlook for quality businesses with a decent and unbroken runway of multi-year growth ahead. And I also know the stock market is a forward-looking beast.
To me, that means share prices today are probably aiming to predict economic and business trading conditions as much as three, six or even nine months ahead. And that means if the real-world economy performs better than expected, it could drive the next bull market for shares.
So I’m not waiting. And over the past couple of weeks I’ve been buying some of the quality stocks on my watchlist. My aim is to hold with an investment horizon of at least five years in mind and probably much longer.
