Well, almost. At its last close, the FTSE 100 index was at 6,219, which is the highest level seen since early March. My key thought when I look to invest £10,000 now is this: is the stock market recovery firmly underway or are we still on slippery ice? I think it’s important to distinguish between stock market increases driven by liquidity and those driven by underlying business expansion.
The present time is clearly not one of expansion, but it is one driven by liquidity. Extensive quantitative easing has encouraged greater stock market activity. Stock markets also seem to have priced in the pandemic’s impact on company performance. So even while business performance flounders, stock prices are rising. Companies that haven’t been impacted by Covid-19 are doing exceptionally well in the equity markets during this time.
Macro uncertainty continues
It’s entirely possible, however, that we are one really bad piece of news away from another stock market plunge. For instance, when the government withdraws (partially or fully) the furlough scheme, there could be unprecedented job losses. It will help keep government spending in check, though, which will positively impact the economy in other ways, but that’s a separate discussion altogether. The point I’m making is, the immediate impact won’t be pretty.
But if our past experiences of stock market crashes are anything to go by, markets will stabilise soon enough. We don’t even have to go back to 2008 for that. Just consider FTSE 100’s gains over the past month or so. That gives a lot to the investor to be confident about.
How I’d invest £10,000 now
Ideally, it’s best to invest when the markets are at their bottom. But it’s notoriously difficult to time the markets. In other words, I think now is as good a time as any other to invest £10,000. FTSE 100 stocks are still trading at a discount compared to the highs from just a few months ago. I’d consider growth stocks among these as good investment avenues.
Some shares have shown impressive recovery in just a short span of time. One example is the low-cost airline easyJet, which wasn’t just hit by the travel lockdown but also internal discord. But its share price has risen sharply since outlook for the company became clearer, and definitely more positive. It remains to be seen how smooth the recovery in its operations is from here, but it’s definitely one to consider.
But if cyclical stocks aren’t up your alley, do consider the FTSE 100 pharmaceutical biggie AstraZeneca. It might look expensive but that’s just how it seems to roll. As it works to fight Covid-19, I reckon its share could remain in demand. There are plenty of other instances among FTSE 100 shares alone that offer growth opportunities. I’d invest £10,000 in these shares. My portfolio will have a combination of both low- and high-risk stocks, to hedge my bets and still come out ahead.