The UK economy is back in a funk. It shrank by 0.1% in March from the month before. While the number itself is not big, it is still worrying because it comes after no growth in February. Moreover, it might even indicate that the situation could get worse before it gets better as the cost of living continues to rise. But the stock markets had already pre-empted this.
UK economy recession risk rises
After touching one-year highs in late April, the FTSE 100 index has tumbled fast this week. I do not want to sugarcoat this, it appears that there could be more pain in store. According to analysts, the risks of a full-blown recession are rising. A recession is defined as two quarters of contraction in the economy.
Stock market resilience
But I continue to be a believer in stock market investing. This is based on my recent experience, if for no other reason. Consider this — just a couple of months ago, in early March, the FTSE 100 index had fallen much lower, to sub-7,000 levels as the Russia-Ukraine war’s full potential impact on inflation and the world economy became clearer. But the markets bounced back soon enough.
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An even bigger stock market plunge was seen a couple of years ago, when the pandemic hit the world with full force. The start of the lockdowns in the UK coincided with a full-blown stock market crash, when the FTSE 100 index lost more than 10% of its value in a day. The stock markets have moved so far and so fast from that, it now seems like a distant memory.
Between these two episodes, a number of other tremors rocked the markets too. So, whatever may happen to the economy right now or in the near future, I firmly believe that good investments can stand the test of time. In fact, now is probably a good time for me to buy more shares.
How I’d invest now
Many FTSE 100 stocks that have seen a drop in share price in the past week have been around for a really long time. Think more than a century. These companies have seen the world wars, the great depression, and most recently the pandemic. For investors like me, with a long-term mindset, I think these offer really good value right now.
I am also looking closely at stocks in sectors that are likely to see rapid growth over the next decade or two. Segments like e-commerce and green energy are among my top picks. Financially healthy companies that have proven themselves in these segments in particular look good to me. The risk is relatively limited while the upside can be huge. Even with all the inevitable ups and downs that will quite likely happen along the way, I am confident that these investing decisions will hold me in good stead over time.
