Jasmine Birtles
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Faltering stocks and the end of cheap money: 3 Investing lessons we’ve learnt in 2023 (so far)
Karl
16th Jun 2023
As we approach the middle of the year we’re using the milestone as an excuse to analyse the performance of stocks, bonds and other assets over the past six months.
So, what lessons have investors learnt this year? And is now a good time to reassess your portfolio?
To learn the answers to these questions, and more, keep on reading. Alternatively, click on a link below to jump straight to a specific section.
How has the stock market performed this year?
Like last year, 2023 has served up a few surprises for investors. Here’s an overview of how popular shares index’s have performed this year, both in the UK and further afield…
FTSE 100
According to IG, the UK’s ‘blue-chip’ FTSE 100 delivered a price return of 645.2% between 1984 and 2022. This equates to a 5.4% annual return.
Of course, this doesn’t mean you’d have enjoyed a steady 5%+ return each and every year if you invested in the FTSE 100 for the past 38 years. For starters, the index fell a whopping 31% after the 2008 financial crash, while the covid-19 lockdowns led to a 16.5% annual decline in 2020. It is, however, fair to say that since the inception of the FTSE 100 investors have enjoyed ‘decent’ average annual returns.
Most FTSE 100 backers will no doubt feel a tad disappointed about its performance this year. As of June 15, the FTSE 100 is up just 0.74% since the start of 2023. And that’s despite the index having a very promising start to the year.
Back in February, the FTSE 100 briefly reached an all-time high of 8,014 points. Since then, however, it’s slumped to 7,600 points.
FTSE 250
The UK’s second largest share index, the FTSE 250, is typically seen as the FTSE 100’s volatile twin. It includes a number of firms that aren’t fully established, so it’s value is prone to big rises and falls.
So far this year the index is down 0.67%.
While this is nothing to celebrate, of course, it’s still a big improvement on its performance last year. In 2022, the FTSE 250 index fell a colossal 19%. Ouch!
International share indices
Now we’ve touched on the two major UK shares indices, here’s a quick overview of how rival indices in Europe and across the pond have fared during the first half of 2023.
- DAX 40. Germany’s Dax 40, which consists of 40 blue-chip firms listed on the Frankfurt Stock Exchange, is up a mighty 15.4% since the year began.
- CAC 40. The French CAC 40 has also enjoyed a stellar 2023 so far, with the index climbing an impressive 10% since the year began. ‘Très bien!’… as the French might say.
- S&P 500. Over in the US of A, the S&P 500 has risen 14.8% since January 1. This rise comes after a torrid 2022 for America’s largest share index, where it suffered a 19.4% fall.
- Nasdaq Composite. The IT-heavy Nasdaq has enjoyed a 31.4% rise so far this year. Despite posting similarly positive returns in 2019, 2020, and 2021, Nasdaq investors suffered a 33% fall last year. This year’s performance undoubtedly means the index is officially ‘back in business’.
How have other assets performed this year?
Now we’ve covered the major share indices, let’s take a look at how non-equities have fared during the first half of the year…
A shaky year for bonds
What is it with bonds lately? After a torrid 2022, many bond holders would surely be thinking that the only way is up for bond prices. Sadly, however, the only thing that has gone up for bonds this year is yields, not prices.
On Wednesday, June 14, 2023, bond yields on two-year government bonds hit their highest level since 2008 following higher than expected pay growth figures. This has massively increased the probability of the Bank of England having to continue raising interest rates. It’s now odds-on that interest rates will go higher, and stay higher for longer.
Even if you don’t own any bonds in your portfolio, if you have a private pension then you probably already have some exposure to bonds. This is one of the reasons why the current turmoil is rather worrying right now. For more on what is happening, read our article on the recent bond market wobbles.
A sluggish year for commodities
The iShares Diversified Commodity Swap ETF has lost 8.46% of its value this year. This tells us that the first half of 2023 has been a bad period for fuels, materials, and precious metals in general.
Breaking this down, it’s interesting to note how oil has had a year to forget so far. The Brent Crude Oil price is down 8% since 2023 began. Meanwhile, the price of wheat has fallen 13.9% over the same period.
Moving on to our most favourite commodity – gold; the precious metal is down 0.32% since the year started. However, this doesn’t really tell us the full story…
Just a month ago, a troy ounce of gold was trading at £1,604 – compared to £1,540 at the beginning of January. That’s a rise in the region of 4%. Yet over the past 30 days or so we’ve seen gold tumble and this is why the precious metal is now in the red for 2023 as a whole.
Bitcoin and Ether are back in a bull run
After a nightmarish 2022, Bitcoin is now back in a bull market. It’s up a massive 45% over the past six months, which indicates there’s plenty more fuel in the tank when it comes to speculating on digital currency.
Aside from Bitcoin’s success this year, it’s worth knowing that Ether, the world’s second-most popular cryptocurrency, has risen a similarly spectacular 31% since 2023 started.
To learn more about investing in digital assets, including the risks you need to look out for, take a look at our beginners’ guide to investing in cryptocurrency.
Investing lessons we’ve learnt in 2023 (so far)
Given we’re now halfway through the year, it’s fair to say that investors have learnt a thing or two – especially when we think about the state of the domestic and global economy.
Here are three investing lessons learnt in 2023 to date:
Lesson 1: UK stocks are underperforming
Take the performance of the FTSE 100 over the past six months. Its misery 0.74% rise compares very poorly with the major European and American indexes.
Not only does this tell us that investors might not be entirely confident in the health of the UK economy right now, but it’s also likely linked to the UK’s – i.e, Bank of England’s – ongoing inability to tackle high inflation.
While inflation is sliding across Europe and the US, the UK is stuck in a limbo of rising prices – a situation that should probably be referenced in future economic textbooks to explain the evils of quantitative easing!
While there’s no guarantee the UK will continue underperforming compared to the rest of the world, it’s very likely we’ve further interest rate rises coming. This is unlikely to boost the value of domestic stocks and shares, particularly in the short-term.
This is why having a globalised, diversified portfolio that isn’t skewed towards the UK is likely to be a decent strategy over the coming months.
Lesson 2: The era of ‘cheap money’ is OVER
Casting aside the UK’s stagnant performance over the past six months, another lesson that investors have learnt this year is the fact that the era of cheap money is now well and truly over.
After over a decade of rock-bottom interest rates, the tide has officially now turned. A year ago the base rate was 1%. It’s now 4.5% (and it probably won’t be long before it surpasses 5%).
This means that firms can no longer borrow without significant risk, which is almost certainly bad news for emerging firms, especially in the tech sector, which could soon see the bursting of a bubble or two.
Higher interest rates are also likely to have a huge impact on various zombie banks that are addicted to, and ultimately reliant upon, ultra-low rates. Likewise, housing stocks are surely set to suffer over the coming months given we’re probably on the cusp of a house price crash.
If there’s ever been a perfect time to reassess your portfolio, that time is probably now!
Lesson 3: Crypto is far from dead
While many were writing off digital assets just a year ago, crypto is now back with a bang. This year we’ve seen crypto giants Bitcoin and Ether enjoy a storming performance, no doubt bringing joy to a number of ‘hodlers’.
Yet, as any long-term cryptocurrency investor will tell you, digital assets are highly volatile. So while these lofty returns are impressive, if you invest in cryptocurrency there’s a real risk of suffering mammoth falls.
Are you worried about the recent performance of the stock market? Take a look at our article that gives four tips for navigating market volatility.
And while we’re at it… do you want learn more about investing? If so, why not sign up for our fortnightly MoneyMagpie Investing Newsletter? It’s free and you can unsubscribe at any time.
Disclaimer: When investing your capital is at risk. Remember, the value of any investment can both rise and fall. Always do your own research.
Cryptoassets are highly volatile and unregulated in the UK. No consumer protection. Tax on profits may apply.
MoneyMagpie is not a licensed financial advisor. Information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence.
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