I’m already investing for the stock market recovery. It’s been a volatile and largely negative year for global markets, but I’m not selling. Instead I’m fine-tuning my portfolio for an upturn in the market.
The only issue is predicting when this bull run might occur.
So, let’s take a look at what’s holding the market back, and how I’m preparing for the stock market recovery.
A cocktail of pressures
There are several pressures weighing on global markets at the moment. And to a certain extent, they’re all related.
It’s unsurprising that investors are risk averse when there is war in Europe, that’s pretty obvious. But more interestingly, there’s a correlation between Russia’s narrative on natural gas supply to Europe, and stock markets. In fact, Bloomberg showed this in a chart on Wednesday morning, highlighting that when Russia indicates it’s holding back gas, markets fall. And this narrative is changing by the day at the moment.
And of course, this is contributing to inflation. But not just in the conventional way that we’ll all pay more to heat our homes. For example, higher gas prices mean higher fertiliser prices. In turn, this means grain will be more expensive going forward, and then it’ll cost more to feed livestock. And therefore the cost of meat soars and supermarkets make less profits or see demand fall.
There’s other pressures too. Higher interest rates, brought in to curb inflation, will push the cost of growth higher and slow economic growth on the whole. We’re also seeing very tight labour markets, particularly in the UK and US, which could inhibit growth and add further cost pressures.
So, when will these issues cease to be pressures? Well that’s anyone’s guess. But for the sake of everyone in Ukraine, let’s hope that comes to an end soon. The normalisation of gas supplies from Russia to Europe would undoubtedly make a big difference to risk sentiment in stock markets too.
A UK-focused portfolio
Stocks in the UK arguably offer the best value for money. Valuations have been depressed for many years following the Brexit vote, which created considerable uncertainty. But more generally, the FTSE doesn’t contain the wildly popular growth stocks you see on the NASDAQ. Companies like Barclays are particularly unloved despite their recent performance. So, as a value investor, my portfolio is primarily focused on UK stocks that appear undervalued.
But I’m also looking for high-potential growth stocks around the world with depressed share prices.
Ceres Power is a UK-based growth stock with huge potential. It is a leading company in hydrogen fuel cells and its growth could be accelerated in the coming years as its partners scale up production. It’s down 32% over 12 months.
I’m also looking at companies like Twilio. The firm, which provides programmable communication tools, is down 77% over the past year. But the company is still growing revenue and the app software market is massive.
With this portfolio, largely weighted towards value and a handful of high-potential growth stocks, I’m hoping to see my strategy pay off when the stock market recovers.