As we head towards the end of 2023, the FTSE 100 is currently showing a modest gain of 2% since the start of the year.
The trading range has been fairly narrow with a high of +7% and low of -3%.
However, there have been some marked sector themes, and standout performances by individual stocks.
Let’s have a look at the year’s winners and losers. And have a stab at identifying areas of the market that could offer good value going into 2024.
High flyer
Most stocks in the industrials sector have outperformed the Footsie in 2023.
Rolls-Royce is at the top of the list by a wide margin. In fact, it’s not only the biggest winner in the sector, but also the standout performer of the entire FTSE 100. Its shares are up a phenomenal 211%.
New management, contract wins, and business recovery in its large civil aviation division, have all contributed to a big positive shift in market sentiment for the stock.
Jet engine flying hours are a major driver of its revenues. And the post-pandemic recovery in global air travel is doing wonders for the business.
British Airways owner International Consolidated Airlines Group (IAG) is another beneficiary of this. Its shares are up 29%.
Consumer discretionary
At the start of 2023, I advised readers to remember that recessions and high inflation don’t last forever. And that markets begin to re-rate stocks for recovery often well before the recovery actually emerges.
I suggested battered consumer cyclicals (like IAG) represented an area of the market that offered good value for investors going into 2023. Happily, that proved to be the case.
Host of big winners
In addition to IAG, we’ve seen market-trouncing performances by other big players in the travel & leisure sector. For example, Intercontinental Hotels Group (+52%) and Premier Inn owner Whitbread (+39%) both rank in the Footsie’s top 20 risers.
Elsewhere among consumer discretionary stocks, housebuilders Barratt Developments and Taylor Wimpey (both +51%) have been notable strong performers.
Meanwhile, on the high street, a host of retail winners include Primark owner Associated British Foods (+54%), Next (+44%) and JD Sports Fashion (+38%).
Marks & Spencer is the standout retail stock of 2023, and ranks behind only Rolls-Royce on the overall Footsie winners board. A 113% rise in its shares saw it re-enter the UK’s top index in late summer, having previously been demoted to the FTSE 250.
Consumer staples
In contrast to the strong performances from many consumer discretionary stocks, market sentiment for the consumer staples sector has been conspicuously weak.
In particular, investors shunned household goods powerhouses Reckitt Benckiser (-2%) and Unilever (-7%), drinks giant Diageo (-20%), and tobacco groups Imperial Brands (-6%) and British American Tobacco (-24%).
It’s rare for the generally resilient — so-called ‘defensive’ — consumer staples sector to underperform when the economic backdrop is challenging. But perhaps the market’s rapacious appetite for cyclicals has had something to do with it.
Defensive winner
Despite a poor year for consumer staples, another famously defensive sector — utilities — has enjoyed a uniformly positive 2023.
British Gas owner Centrica (+50%) is the biggest winner, but all five blue-chip utilities are currently showing market-beating returns.
Other sectors
Commercial property, in the shape of Real Estate Investment Trusts (REITs), is another sector that’s done rather well.
The Footsie’s three current REITs — Land Securities, Segro and Unite — are all boasting gains of between 17% and 21%.
Within other sectors, such as financial services and natural resources, the performance of individual stocks has been distinctly mixed. In fact, the Footsie’s three biggest losers are to be found in these two sectors.
Namely, wealth manager St James’s Place (-33%), gold and silver miner Fresnillo (-34%) and diversified miner Anglo American (-40%).
Looking ahead
I think the recovery of battered consumer cyclicals has probably been the most striking sector theme of 2023.
Obviously, the sector doesn’t offer quite the same value today as it did 12 months ago. However, if the economy has a ‘soft landing’ in 2024 as past multiple interest rises work through the system, these stocks could be in the mere foothills of recovery.
Nevertheless, consumer staples — notably Unilever and Diageo — look more interesting to me today.
With their stables of rare, valuable and trusted global brands, I see them as great businesses for long-term investors. And after underperforming in 2023, I reckon their shares are now on offer at very reasonable prices.
On that note, let me wish you Merry Christmas and prosperous stock picking in 2024.
