The UK stock market’s run out of steam in recent weeks. It was always likely to happen, after a strong run sent the FTSE 100 flying to all-time highs.
I don’t see that this as a vote on the UK economy. While there’s a lot of bad news out there right now, most of it isn’t about us.
Global stock markets are rattled by the political crisis in France, falling house prices in China, and a stuttering US economy. In an interconnected world, that hits us too. Especially since FTSE 100 companies generate three quarters of their earnings overseas.
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UK stocks are sliding
After years of turmoil, the UK looks relatively calm. The prospect of the Labour Party returning to power after 14 years isn’t spooking the market.
We learned this morning that inflation fell back to the Bank of England’s 2% target in May. The cost-of-living crisis is finally starting to ease. The EY ITEM Club expects the UK economy to grow 2% in 2025, up from its earlier prediction of 1.8%. That’s not exactly blistering, but it’s an improvement.
There are still huge challenges. The UK continues to run a massive deficit. Taxes may have to rise, if Labour’s to improve public services. Growth is hard to come by. All of that will weigh on UK shares.
Summer tends to be tough for the stock market. The old adage that begins ‘Sell in May…’ appears to have some truth in it. Personally, I think a summer slump is a great time to go shopping for cut-price FTSE 100 stocks. There are loads out there today.
Some of my portfolio favourites have taken a beating, with Burberry Group, GSK and Legal & General Group down around 10% in the last month alone.
FTSE 100 recovery play
I’ve got one eye on media, analytics and advertising giant WPP (LSE: WPP). Its shares have fallen 12.64% over the month. Over one year, they’re down 15.34%.
WPP is battling to revive its own brand following the controversial departure of founder Martin Sorrell in 2019. Corporates tend to cut their advertising and marketing spend in tough times, and WPP has been at the sharp end of that.
First-quarter revenues fell 1.4% to £3.4bn as it lost a healthcare client, while tech companies cut spending. Guidance isn’t very encouraging, with anticipated full-year growth of 1%, at best. New artificial intelligence (AI) capabilities will help, the board claims. I’ll be watching its progress this summer. In a cyclical sector, it’s better to buy when a stock’s falling rather than flying.
There are plenty more opportunities on the FTSE 100. I’m also eyeing Ashtead Group, and considering topping up my stake in spirits maker Diageo, which is really on the rocks right now.
Today’s cut-price FTSE 100 bargains look like an unmissable buying opportunity and I’m not going to waste it. I hope to be fully invested by the autumn, so I’m ready for the end-of-year rally, if we get one. We often do.
