Volatility among UK shares is back on the rise. But rather than pushing stock prices down, it seems things are finally moving up. Both the FTSE 100 and FTSE 250 appear to be on a roll this year as inflation cools and the Bank of England seems to be getting ready for interest rate cuts.
This boost to investor sentiment’s a welcome sight after years of pessimism. Of course, should the economy decide to take a turn for the worse, this recent rally could quickly undo itself. But assuming that we are indeed approaching the light at the end of the tunnel, the clock might be ticking for investors to capitalise on buying opportunities.
Severe stock market corrections and crashes aren’t all that common, despite what some bearish investors might suggest. And since the previous bull market lasted more than a decade, there’s a chance it could be another decade before investors get to reap such widespread bargains once again. That’s why June might be a can’t-miss opportunity to do some portfolio shopping.
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The return to growth
We can already start to see the power of buying dirt cheap stocks. Looking at just the last six months of the FTSE 100, 44 companies – almost half – have jumped by double-digits. By comparison, only nine have seen a double-digit decline.
Among the winners, 29 have achieved gains greater than 15%, 17 greater than 20%, and 10 greater than 25%! And those figures don’t even include the extra returns earned from dividend payments. So it’s no wonder that the UK’s flagship index is up by double digits so far this year, far exceeding its usual 8% annual gain.
| Company | Industry | 6-month Performance |
| Rolls-Royce Holdings | Aerospace & Defence | 63.9% |
| Barclays (LSE:BARC) | Banks | 54.5% |
| Natwest Group | Banks | 49.2% |
| Antofagasta | Metals & Mining | 47.3% |
| BAE Systems | Aerospace & Defence | 31.4% |
| Pershing Square Holdings | Closed-End Investments | 30.1% |
| DS Smith | General Industrials | 28.5% |
| Beazley | Non-Life Insurance | 27.8% |
| 3i Group | Investment Banking & Brokerage | 27.4% |
| InterContinental Hotels Group | Travel & Leisure | 25.3% |
Beware of the risks
A rising tide may lift all boats, but those with a hole in the hull will eventually sink. In other words, just because a stock’s surged thanks to improving macroeconomic conditions doesn’t mean it’ll continue climbing in the long run. It’s up to investors to carefully analyse each stock both before and after buying shares to ensure there are no critical weaknesses that could invalidate an investment thesis.
Let’s take a look at Barclays as an example. The bank’s hugely benefited from higher interest rates, which have pushed the net interest margin to 3.13% and return on tangible equity (RoTE) to 19.2%. By comparison, its chief competitor, Lloyds, currently stands at an RoTE of 16.6%.
But Barclays’ track record’s been a bit all over the place due to its overdependence on its investment banking arm. The performance inconsistency from this division has ultimately netted a lacklustre result over the last decade. And management’s in the process of executing a massive restructuring of the bank to try and stabilise its RoTE at 12% by 2026. In fact, this decision appears to be a leading catalyst behind the bank’s stellar performance in 2024.
Unfortunately, that also means should Barclays fail to hit its target, shares could be in for a big tumble. The other firms similarly have their own challenges to overcome. But the investors who are able to differentiate the winners from the losers in the early stages of the new bull market could reap enormous long-term returns.
