Can the stock market keep rising like this?

2023 has certainly started strongly for the stock market. In London, the FTSE 100 up 4.7% so far this year when small FTSE 250 the index has increased by 3.9%. This may not sound like a huge benefit, but within two months I felt great. After all, in the past 12 months, the main index only grew by 6.4% while its little brother lost 4.4%.

Across the pond, 2023 is also off to a good start, at least in some respects. Heavy technology Nasdaq has fallen 17.3% in a year – but up to 9.6% so far in 2023.

By contrast, the Dow Jones the index is down 3.6% over the past 12 months, and has lost 1.4% since the start of 2023.

Aside from the Dow, those are some pretty promising numbers for just a few months of the year. Can they keep going – and what does that mean for my portfolio?

Positive momentum

No one knows what will happen in the stock market. So recent performance isn’t necessarily a sign of what’s to come next.

But I see some reason to hope that 2023 can continue to be strong. Rich technology companies Tesla and Meta has made a comeback this year. If they continue to win with investors, this could help the Nasdaq stay in good shape.

Potential buyers have reportedly been circling the UK stock which is believed to offer good value. Looking at some of the prices now, they look interesting to me. Legal & General, for example, trades in a price-to-earnings ratio below 8, despite making several billion pounds in post-tax profits last year and having a progressive dividend policy alongside a 7.2% yield. An attractive revaluation can bring in more investors, helping to boost stock market valuations.

Recovery is not certain

But momentum can be lost if it lacks basic support. Looking at the current corporate landscape on the London stock exchange, I have my doubts about the pace and scale of the economic recovery.

The last round of results from the bank such as Barclays and Lloyds provides an indicator of weakness in the economic sector. Housing stocks have been reeling on worries about the property market. Inflation continues to increase costs for producers, while stretched consumer budgets continue to pose risks to demand. But the concerns are not limited to the UK, as the lackluster Dow at the start of the year showed.

There are drivers to recover again in 2023, as the global economy opens almost for the first time since before the pandemic. But I also see an ongoing risk.

My stock market plan

Based on that, I would be surprised if the strong positive momentum seen in the UK so far in 2023 could continue at the same level throughout the year. It might happen, but I’m definitely not counting on it.

That’s good, because I don’t buy the index as a whole. However, I am looking for great companies with attractive valuations that I can add to my portfolio. That’s my plan for 2023, regardless of what happens in the broader stock market.