The FTSE 100 has made a decent start to 2023. Going into the Easter weekend, it’s up 3.9% for the year to date.
Over 70% of the UK’s blue-chip stocks are in positive territory. And as many as 11 are showing gains in excess of 20%.
I’ve spotted one major theme running through the big risers. And a number of other points of interest for investors who may be looking to utilise their new financial year’s ISA allowance.
Good value
Writing at the start of the year, I suggested battered consumer-facing stocks could offer good value. Many suffered badly in 2022, as the market fretted about high inflation, the ‘cost-of-living crisis’, and a potential recession.
I said it’s worth remembering that high inflation and recessions never last forever. And that markets often begin to re-rate stocks for recovery well before the recovery appears.
Retailers
No fewer than five of the 11 Footsie stocks that have risen 20%+ this year are retailers. Namely:
- JD Sports Fashion (+31.6%)
- J Sainsbury (+25.5%)
- Primark owner Associated British Foods (+24.5%)
- Burberry (+21.9%)
- B&M European Value Retail (+20.5%)
The Footsie’s other four blue-chip retailers have also outperformed the index.
House-builders
The house-building sector is another good barometer of where the market sees consumer confidence heading. The shares of the four FTSE 100 builders had a truly awful 2022.
However, the stocks have clawed back some of last year’s losses. All four have made gains in 2023, led by Taylor Wimpey (+17.9%). Property portal Rightmove is also up.
Wide range
Elsewhere in sectors sensitive to consumer spending, the shares of online car market place Auto Trader, Premier Inn owner Whitbread, and Intercontinental Hotels are all ahead by mid-teens percentages. Meanwhile, British Airways owner International Consolidated Airlines is in the 20%+ club with a gain of 20.4%.
The big theme then, is the strong performance from a wide range of consumer-facing stocks. Yet, despite the gains, many are still below their levels of early 2022. This suggests there’s scope for further re-ratings of their shares, if market sentiment continues to improve.
Biggest riser
Aerospace & Defence stocks have also enjoyed a strong start to 2023. In fact, Rolls-Royce, with its large civil aviation business — hello again improving investor appetite for airline stocks — is the biggest riser (+58.7%).
Melrose, a lesser known Footsie firm — which is in the process of demerging a number of its businesses, leaving it focused on aerospace — is another on the top risers list (+20.5%). BAE Systems (+18.2%) only just falls short.
Mixed bag
The remaining three stocks in the 20%+ club are a diverse bunch: BT (+33.3%), betting and gaming group Flutter Entertainment (+30.6%) and Endeavour Mining (+22.9%).
The fact these three stocks have made significantly higher gains than their sector peers suggests positive company-specific sentiment towards them. BT’s rise compares favourably with Vodafone‘s (+8.6%), albeit the latter did outperform the FTSE 100.
More strikingly, Flutter has risen strongly, but the shares of its Footsie rival Entain have actually declined (-2.0%). Entain’s performance wasn’t helped by US casino operator MGM Resorts ruling out making a takeover bid.
Endeavour Mining is focused on gold. A strong rise in the gold price to within touching distance of its all-time high hasn’t done the miner any harm. But again, this stock’s performance is markedly superior to that of its blue-chip sector peer, Fresnillo (-12.6%).
Recap
In summary, we’ve seen a major sector theme of strong gains for a wide range of consumer-facing stocks. The Aerospace & Defence sector has caught the eye, too. And investor demand for several individual companies — rather than their sectors — has produced some of the big winners.
The market’s appetite for consumer-facing stocks has clearly improved. Nevertheless, while the rising tide of positive sentiment has floated many boats across the sector, most have yet to reach their high-water marks of early 2022. If sentiment goes on improving, the shares should continue to re-rate higher.
Defence spending by Western governments will undoubtedly increase in coming years. However, it’s debatable whether this development is now fully baked into the prices of stocks in the Aerospace & Defence sector.
Final thought
Nice though it is to report on the FTSE 100’s decent start to 2023 — and some recovery of our battered consumer-facing stocks, in particular — I would hope the Easter prayer of investors was not one of thanks for the gains, but of hope for a sharp market pullback in the new ISA season!
