After making gains in the months following the stock market crash in March, the FTSE 100 index has struggled during this quarter. From July onwards, the average index level has been falling. For September so far, it’s at 5,974, the lowest in four months. And from recent developments, it appears that it will remain weak going forward.
Coronavirus cases are rising, which could result in another lockdown in the UK. This in turn will pose new difficulties for the economy that is just about coming out of a recession. The unemployment rate is on the rise and the government’s furlough scheme is a little over a month away from being rolled back. Fresh restrictions will only worsen the labour market scenario and overall spending in the economy. And I haven’t even touched on Brexit and US-China trade tensions, which can also drag FTSE 100 down.
Buying the best UK shares
As an investor, I’m now most interested in how to ensure my investments are best placed in uncertain times. The first step is to recognise that in the short term there may be no gains to be made. The FTSE 100 index could stay weak or worse still, another stock market crash maybe in the offing. I think it would be best to prepare ourselves for a dip in the value of our investments. Stock market crashes tend to be equal opportunity events. This means that all stocks, irrespective of their intrinsic values, see falls in share prices as investors run for cover.
Avoid declining sectors
But we at The Motley Fool advocate long-term investing, in any case. There are plenty of FTSE 100 stocks that can hold us in good stead over time, even if the trend is disappointing in the short term. I’d consider shares in sectors that are expected to see continued growth in the years ahead. These can be safer bets than big industries that will decline in the future.
A good example of slowing industries is fossil fuels. Negative environmental impacts, rising awareness about climate change and the development of clean energy solutions means that it’s time for oil majors to pivot. FTSE 100 oil biggie BP has acknowledged as much recently. Similarly, the tobacco industry is on the decline as well, which will tell on the fortunes of Imperial Brands and British American Tobacco eventually, especially if next-generation tobacco products don’t take off.
Consider rising FTSE 100 segments
On the other hand, alternative energy companies and health & fitness-focused firms are proliferating. But many of them are not either big enough to be publicly listed or if they are, they’re still quite small. Technology, however, is one example of an outlier. Some of the biggest global stocks are technology stocks, and they continue to grow at speed. Amazon, of course, is a prime example of this.
The UK has its share of technology-driven outperformers as well. One example is online grocer Ocado. But there are others where the share price hasn’t run up quite as much. Consider Rightmove, the online property marketplace or Relx, the accounting software provider. I think they would make good FTSE 100 buys now.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Manika Premsingh owns shares of BP, Ocado Group, and Rightmove. The Motley Fool UK owns shares of and has recommended Amazon. The Motley Fool UK has recommended Imperial Brands, RELX, and Rightmove and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. 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.