9 February 2023

Into the upswing?

Brian Tora provides his insight on recent business reports and FTSE performance.

There hasn’t been a lot to remark upon in recent weeks, which is why it has been three weeks since last I shared my thoughts on markets with you. Back in mid-January I recall mentioning that the FTSE 100 Share Index was flirting with new high ground. Subsequently it did indeed achieve a new peak, helped by record profits from oil giant Shell. True, it was but a fleeting venture into record territory, but it was encouraging none the less. Subsequently it has been BP that has demonstrated how much energy companies have benefitted from the surge in oil and gas prices. It is indeed an ill wind…

Company news is likely to be coming in thick and fast over coming weeks as businesses report their results for 2022. Unilever and Astra Zeneca are shortly to share their experience of last year with shareholders. Positive profit figures from these major international companies would help the Footsie maintain its momentum, but this is not the only reason we are currently outpacing other major stock markets. Another plus has been the recent weakness of the pound as a high proportion of the earnings of these companies arises outside the UK.

The second tier 250 Share Index has performed less well, but then the focus here is more towards domestically focussed businesses. It remains around 10% below last year’s high point, with continued worries over industrial action and productivity adding to the threat of a recession and acting as a dampener to sentiment. Bargain hunters do feel that value can be found in the echelons of lower market capitalisation businesses, but smaller companies can be at the higher end of the risk spectrum, so need to be approached with caution.

Elsewhere, there are signs that inflation has peaked in the US, while employment figures there are more encouraging. It is to be hoped that the rise in the cost of living will be moderating here too, but the recent fall in the value of sterling will add to the upward pressure on prices. Oil and gas, for example, are priced in dollars, so although energy prices have stabilised, some of this benefit will unfortunately be eroded. Even so, it does feel as though the worst of recent price rises may be behind us. Perhaps it could be a better year for investors after all.

Brian Tora           

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