To my ears, the economic mood-music is changing. Central banks appear to be landing a few blows in their fight against inflation. Indeed, early signs around the world suggest higher interest rates may be finding their target and helping to ease the rate of rising prices.
And many commodity prices are trending lower. I’m thinking about resources such as crude oil, gas, lumber, copper, crude palm oil, wheat and oats. Also, on top of that, container shipping prices are continuing a fall that began weeks ago.
Meanwhile, companies keep pumping out buoyant trading results and upbeat outlook statements. Not all of them, but enough to keep me excited about the depressed share prices and lower valuations in the stock market.
How the bull could follow the bear
In recent weeks there’s been evidence that stocks could be beginning to turn back up. It’s a messy process. And not all shares are moving in lock-step. But I reckon we could be seeing the first green shoots of a stock market recovery that could build into the next bull market.
If I’m right — and I may not be — we could begin to see many fallen FTSE 100 shares start to stair-step back up again. And the move could surprise some people because of all the negative economic news in the mainstream media.
How can it be, people may ask, that a bull market begins when the economy is diving into a recession? But my answer would be that the move higher always seems to start when economic and geopolitical news flow is at its bleakest. And that’s because the stock market looks ahead.
Meanwhile, events in real life on the ground tend to be a lagging indicator. And forward-looking stocks have often priced-in negative news before it’s reported. So I reckon the gains in FTSE stocks we’ve been seeing lately could prove to be enduring moves. The stock market is doing its thing and looking beyond the recession towards the brave new world beyond.
How I’d target FTSE 100 shares
The falls in the bear market have played out as we might expect. Some of the stocks backed by defensive businesses have held up quite well. I’m thinking of names such as Imperial Brands, Unilever and others. But consumer-facing constituents of the Footsie have taken a hammering, in many cases.
So I’d target those fallen stocks. And my attention rises when I see a quality business with decent growth prospects sporting a keener valuation. In fact, I’m particularly keen to analyse and potentially buy businesses like that just after they’ve reported good news and an upbeat outlook.
Right now, I like the look of companies such as Smith & Nephew, Intertek, Rightmove, Hikma Pharmaceuticals and Smurfit Kappa. There’s no guarantee a long-term investment in these shares will go on to perform well for me. But if I had spare cash, I’d first be researching stocks like these in the FTSE 100.
