The stock market crash had already signalled this, but now we have it in the numbers. Growth data released earlier today is bad, as expected. The UK’s economy shrank by 2% in the first quarter of 2020, prompting the Office of National Statistics (ONS) to say that “This is the largest quarterly contraction in the UK economy since the 2008 global financial crisis”.
If that’s not bad enough, there’s more. In March alone, the month when the lockdown began, economic contraction was far faster, at 5.8%.
Two consecutive quarters of economic contraction means that the economy is in a recession. The latest numbers show that the UK is just one quarter away from a recession now. In fact, it’s already underway. Consider this. If less than a month of lockdown has resulted in a sharp reduction in gross domestic product (GDP), imagine the impact of an entire quarter or at least much of a quarter. It may well mean another stock market crash.
Light at the end of the tunnel
This is unfortunate, to say the least. But at least some good news is at hand as well. We can see light at the end of the tunnel. Many countries are reporting containment of coronavirus, which shows that extreme social distancing measures have actually paid off. Lockdown restrictions are likely to get relaxed over the coming days and weeks, indeed relaxations are already underway.
As an investor, it’s easy for me to get caught up in the negative news flow and steer clear of investing all together. This is especially true when the FTSE 100 is showing signs of weakness, shortly after a spectacular stock market crash. As I write, the index has lost all the gains made yesterday of around 1%, probably as the bad news sinks in.
Looking past the stock market crash
But, if I can get past this short-term noise, I stand to gain most from investing if I make careful FTSE 100 investments right now. Many stocks of growing and profitable companies have already shown a steady rise in share price since the FTSE 100 index first hit a bottom towards the end of March. But here’s the catch. The share price has risen, but it’s not back to where it was before the crash.
With the economy and the FTSE 100 index still mired in uncertainty, it’s likely that there will be a waiting period before they reach previous highs. But, when they do, as an investor I will have much capital appreciation to show for my efforts. One example is the FTSE 100 mining giant Rio Tinto, whose share price is almost 20% lower as I write, compared to highs it saw in January this year. Another example is the FTSE 100 pharmaceuticals and healthcare biggie, GlaxoSmithKline. Its share price isn’t quite as far from earlier highs as RIO’s, but it hasn’t reached there either. These are just two examples. There are plenty of other FTSE 100 stocks to consider investing £5,000 in now.
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Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.