There’s been a bear market going on for many US and UK stocks over several months. And that’s been particularly true for over-valued tech and growth stocks and for many British small-cap companies.
However, those just watching the major indices here in the UK such as the FTSE 100 might not have realised it. Indeed, the weakness in the stock market has been happening under the surface. And it’s been showing up most in individual investors’ portfolios.
A news-driven market
Issues arising from the pandemic caused some of the problem in the markets. For example, supply chain constraints and rising price inflation served to put a question mark over the sustainability of economic growth.
And the tragic war in Ukraine has accelerated the declines for many UK stocks. However, companies in the resources sector — such as miners and oil companies — have seen their stocks rise in many cases. And much of that movement has been due to rising commodity prices, such as copper, nickel, iron ore, oil and others.
Meanwhile, in the short term, the stock market looks like it’s being driven mainly by news flowing from the situation in Ukraine. And yesterday (Wednesday 9/3/22) was a good day for many stocks in the UK. Indeed, my screens lit up with blue as share prices bounced up by robust single-digit percentages in many cases.
So far, today is shaping up to look a little weaker for stocks. And that suggests the volatility looks set to continue. But I reckon yesterday’s price action demonstrates how responsive the market will likely be to any improvement in the news flowing from Eastern Europe.
For example, any announcement of an end to hostilities could see an even bigger bounce higher on the markets. And I think that will be justified because the war is perhaps artificially depressing stocks right now. It’s possible the stock market’s gloomy stance overstates the potential damage that underlying businesses will suffer from the hostilities.
Investing now for the long term
Longer term it will likely take time for the world, its economies and businesses to digest the changing geopolitical and economic landscape. And things will probably not be as they were before. However, I have faith that businesses will adapt to the new realities. After all, they’ve coped with changes before, such as those caused by the pandemic.
For me then, it is a good time to buy UK shares. There are ongoing risks to owning stocks, of course, but that’s always true. And that’s why we have the popular aphorism that stock markets always climb a wall of worry. But the long-term record for stocks overall is good.
And I’ve got to ask myself the question, would I rather invest in UK shares now, when valuations are potentially depressed. Or would I rather invest in a raging bull market when valuations are excessive? Those investing into growth and tech stocks near their highs last year may have a good answer for me!
Meanwhile, my tactics now involve dripping money into UK shares I’ve selected carefully with the aim of holding them for the long term.