Some parts of the stock market have faced significant challenges so far this year. The US technology-focused Nasdaq index is down by 30% over the past 12 months.
But that’s in stark contrast to the UK’s FTSE 100 index. It’s risen by 6% during that time and is one of the few major indexes to have made a gain.
So what’s going on?
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Stock market gains and losses
It’s due to the types of stocks that make up these indexes. The Nasdaq is filled with many high-growth technology shares. Throughout the year, the US Federal Reserve has focused on trying to control surging inflation.
It’s trying to do so by raising interest rates and reducing financial liquidity in the economy. Both of which tend to put pressure on tech stocks, regardless of how strong their underlying businesses are.
By contrast, the FTSE 100 holds very few high-growth tech stocks. Instead, it’s comprised of many mining and energy shares like Rio Tinto and BP. It also holds several defensive shares such as Imperial Brands and BAE Systems.
And these are exactly the type of shares that have been in demand this year.
Looking ahead
Looking ahead into 2023, it’s possible that the US central bank achieves its aim and succeeds in controlling inflation. In that scenario, it could potentially create an excellent opportunity for me to add to my Stocks and Shares ISA.
After all, stock market history suggests that over the long term, share-based investments tend to trend upwards.
That said, it’s notoriously difficult to consistently time the market. In fact, as the saying goes, it could be far more lucrative to spend time in the market rather than trying to time the market.
Past and future winners
In the coming decades, the issues the stock market faces today will likely fade into insignificance. Instead, the future winners could be companies that are venturing into new products and markets now.
Also, I think it will probably be more valuable to catch the big trends rather than the short-term tops and bottoms of the market.
Looking back over the past 10 -15 years, let’s consider some major trends that created the biggest stock market winners. The rise of smartphones, and e-commerce helped the likes of Apple, Amazon and the rest of the ‘FAANG’ stocks.
If I’d bought £1,000 of Apple and Amazon shares 15 years ago, they’d be worth over £25,000 today.
That’s despite several recessions and the 2008 global financial crisis.
Looking forward, I reckon the big trends of the coming decade might be found in biotechnology, big data, and renewable energy.
British winners
Closer to home, the UK stock market features fewer global giants, but no shortage of equally excellent prospects.
It might be surprising to read that Ashtead, Games Workshop and JD Sports Fashion all achieved similar share price gains to Apple and Amazon during that timeframe.
Recessions often create investment opportunities, and 2023 might also be one of those years. But instead of trying to find the bottom, I’d continue my long-term investment plan to regularly invest in good quality companies, both in the US and UK. But that’s a topic for another day.
