As a top-down macro investor, I am of the view that the performance of stock markets is closely related to that of the economy. We saw this clearly last year. As the pandemic halted the economy, the stock markets were deeply impacted as well. So even at this time, when the FTSE 100 index is in a robust place, I would not take weak economic updates lightly.
UK’s economy slows down
The UK’s economy grew only by 1.3% on a quarter-on-quarter (qoq) basis for the three months ending 30 September. This is a sharp decline from the 5.5% increase seen in the quarter before. I find this disappointing because all the restrictions on activity were actually lifted in the latest quarter. Ideally, more growth should have come through. Interestingly, these three months also coincide with stagnation in the FTSE 100 index, which had largely inched up in 2021 until then.
The silver linings
But there are silver linings to this cloud as well. In September, economic growth improved from July and August. This means that a stronger recovery could finally be underway, even if delayed.
Also, some segments have seen strong growth at this time, which gives me clues on where I can direct my investments now. Services growth has seen much improvement, for instance. It is almost back to its pre-pandemic levels. This is better performance than for the economy as a whole, which is 2.1% below its pre-pandemic levels.
Clues for my stock market investments
Within this, segments like hospitality, arts, and recreation were the biggest contributors to the increase in the gross domestic product (GDP), which is the headline measure for the economy. This gives me some clues as to where I can look to make my next set of investments. It needs to be done with care, though.
While there are plenty of FTSE stocks that represent these segments, not all of them are necessarily impacted significantly by the UK economy. Some of these could be multinationals with significant interests outside the country. An example includes the FTSE 100 company Intercontinental Hotels Group (IHG), which operates in 100 countries and over half of whose revenues come from the Americas. And the rest are spread across other parts of the world.
FTSE 100 stocks to consider
On the other hand, though, are stocks like the Premier Inn owner Whitbread. Also a FTSE 100 company, it is predominantly UK-driven with some presence in other parts of Europe. So as the country’s hospitality sector looks up, I am now looking at it more closely to assess whether it is a good buy for me or not.
I am also considering pub stocks like JD Wetherspoon, Mitchells and Butlers, and Marston’s to figure out where they are on the recovery curve. They have been on my investing radar for sometime already, and now they are even more so.