[ad_1]
Image source: Getty Images
News economic growth is pushing the FTSE 100 close to an all-time high this morning. British economic activity increased in November instead of declining as forecast, making the recession less likely.
Despite persistent inflation concerns, the outlook for economic growth may seem like good news for UK investors. But I have three reasons not to get carried away by today’s news.
Focus
The first reason I treat the news with caution is that the boost to the UK economy appears to be quite specific. A good amount of boost came from the World Cup.
Despite being out of the quarter-finals, football fans headed to pubs and bars to watch the match. It improves the economy, but I think the effect will be limited in two important ways.
First, it seems like a one-off event, rather than something more lasting. With the World Cup now over, I’m not sure the spending will continue.
Second, higher spending appears to be concentrated in pubs and bars. This gives no reason for optimism about higher corporate earnings across the board.
economic growth
Even before today’s news, a recession was never a certainty. One is a possibility and I remain so, but there is reason to think that it can be avoided.
According to research from Morgan Stanley, UK consumers are sitting on savings deposits of more than £200bn. And monthly inflows remain higher than pre-pandemic levels.
This shows that British consumers have money to spend. So boosting the economy from increased spending is always a possibility.
Energy prices also fell as the winter weather was especially warmer than expected. This has helped limit the effects of anticipated increases in energy bills.
So, I never thought a recession was a death certificate. Today’s news didn’t change much because I thought there was a chance to avoid it.
Investment
The last reason I don’t like the news so much today is that macroeconomic news plays a limited role in my thinking. As an investor, I look to buy stocks and hold them for a long time.
When I buy shares in a business, I look to own them for 10, 20, or 30 years. That means it’s likely that I’ll have investments during a recession at some point.
Instead of working on stocks that will do well in certain situations, I focus on the long term. I think about companies that will do well over many economic cycles.
If the UK stocks I own return more profit this year due to a better macro economic outlook, that would be great. But as an investor, that’s just one part of the bigger picture.
Overall, I only want to buy shares in strong companies at the right price. If avoiding a recession means higher income, that’s fine by me. But I wouldn’t take a short-term view.
[ad_2]
Source link