Many FTSE 100 stocks faced severe downward pressure in 2022. You wouldn’t know it by looking at the index as a whole though.
The index is actually up marginally over the past 12 months, having started 2022 and 2023 just above 7,500. But this doesn’t tell the whole story.
An unequal recovery
FTSE 100 stocks took a hit following Russia’s invasion of Ukraine in the first quarter of 2022. The index recovered, driven upwards by surging resource stocks while many banking, retail, and housebuilder shares continued to slump.
The economic environment has become challenging for many sectors. Inflation is at levels not seen in my lifetime and interest rates have moved accordingly, increasing the cost of borrowing and potentially slowing growth.
As we enter 2023, the immediate economic environment doesn’t appear greatly improved. In the UK, we’re presented by a recession and interest rates are likely to remain elevated for some time.
Will things improve?
Many analysts suggest the economic picture will improve in the latter half of 2023. And, as a result, we should see some upward pressure on the index in the coming months as a result.
Having said this, it’s worth noting that the Economic Forecast Agency (EFA) suggests the FTSE 100 could close around 7,122 in March. In December, the analysts forecast that the index could push as high as 8,588 by March.
There’s clearly been a change of thinking here. Maybe they see the resource-stock-heavy index falling on China’s epidemiological challenges.
Despite this, I see the general economic conditions improving for fallen FTSE 100 stocks in areas such as retail later in the year. And that’s why I’m buying now.
What am I buying?
Stocks serving or directly involved in the healthcare sector have underperformed since the start of the pandemic. There are several reasons for this, but first among them is the Covid-related disruption. Naturally, national resources were redirected from hip replacements to Covid treatment.
My top pick here is Smith & Nephew. Demand is improving in the sector but the firm has been caught out by inflationary pressure. However, I’d contend that Smith & Nephew’s medical devices have considerable defensive qualities. After all, hospital will pay a premium for the best product.
So after a tough three years, I’m forecasting things will get better in 2023. As such, I recently bought more Smith & Nephew shares for my portfolio.
I also bought more Hargreaves Lansdown stock before Christmas. The firm surged during the pandemic before tanking in 2022 as growth slowed. However, despite the cost-of-living crisis, I think 2023 offers an improving outlook.
The firm is the UK’s No 1 investment platform for picking stocks and shares. I use it, and I believe it’s the most-used platform for a reason.
Moreover, investing is apparently high on the resolutions list for many Britons this year. So as they turn from spending to investing, Hargreaves could be well positioned to benefit.
