There’s been no stock market crash this week. Not yet, anyway. Given escalating tensions between Israel and Iran, some may find that surprising.
Markets certainly crashed in April, after US President Donald Trump unveiled his global trade tariffs. The sell-off was sharp enough to make him backpedal within days. A relief rally followed, and shares roared back.
Despite everything, global equities have held up. The FTSE 100 is now up almost 7% year to date. That’s remarkable, considering the world seems to lurch from one crisis to the next these days.
The FTSE 100 is holding up
Missiles are flying across the Middle East, yet investors have kept calm. The FTSE 100 dipped on Monday but quickly stabilised. At the time of writing, it’s down just 50 points this week at 8,837.
There could be many reasons for this. Perhaps investors have learned from the Trump tariff wobble that it’s better to stay put rather than dump shares at the first sign of trouble. That’s always been our view at The Motley Fool: think long term.
Markets swing from day to day, but over time, they rise. I like picking up bargains when shares fall, but I won’t try to second guess geopolitics.
I prefer to focus on what I can control. I look for companies with solid balance sheets, loyal customers, strong dividend histories, high barriers to entry, and fair valuations.
Retail resilience
One company that ticks a lot of those boxes is clothing chain Next (LSE: NXT). I’ve long underestimated it. UK retail has faced relentless challenges, from the pandemic to inflation, shifting shopping habits, and collapsing consumer confidence.
Many equally established high street brands have vanished. Even online retailers like ASOS and boohoo have taken a beating. Yet Next has kept going. Its shares are up 40% in the last year and a staggering 138% over five years.
In May, the board raised annual profit guidance by £14m to £1.08bn after a strong Q1, helped by sunny weather driving early summer clothing sales. However, it cautioned that some demand may have been pulled forward from Q2, and held annual estimates of flat revenues.
It hasn’t all been plain sailing. In March, Next warned of “deteriorating consumer confidence amid higher living costs”. That’s still an issue, with UK inflation stuck at 3.4% in May, as we learned today, and the CBI warning it could hover around 3.5% throughout Q3.
Margins under pressure
Wage growth has added to the pressure. April’s rise in the national living wage and employer’s national insurance bills will squeeze margins.
Next isn’t exactly a bargain stock either, with a price-to-earnings ratio of around 20. But that hasn’t held it back before. It just keeps growing.
I think Next is still worth considering today. Investors like me who have hung around waiting for the shares to dip have lost out on a lot of growth instead.
Events in the Middle East aren’t the story here. It’s the underlying business that counts. And it’s strong. I don’t need a stock market crash to consider buying stocks as good as this one.
