Earlier in July, the UK inventory market’s flagship index, the FTSE 100, broke via the 9,000-barrier for the primary time. Since July 2024, it’s risen 11%. Wanting again 5 years to July 2020, when the pandemic was inflicting havoc, the index was simply over 6,000. Thus far in 2025, the UK’s largest 100 listed firms have outperformed the S&P 500.
And but the UK economic system seems to be struggling. The newest month-to-month information for development, inflation and unemployment reported actions within the incorrect route. To make issues worse, June’s authorities borrowing was at its highest stage for the reason that ‘Covid years’. Most economists seem to agree that tax rises might be wanted in October’s funds.
A worldwide view
This obvious contradiction is partly defined by round 80% of the income of Footsie firms being earned abroad. This implies they aren’t totally dependent upon the home economic system.
However there are additionally loads of examples of, for instance, US firms buying and selling at traditionally excessive multiples. The S&P 500’s a fraction off its all-time excessive and has recovered all of its post-‘Liberation Day’ losses. But, JP Morgan’s warned there’s a 40% probability that America could have a recession this yr.
Historical past will repeat itself
In opposition to this backdrop, I’ve been wanting on the historical past of inventory market corrections. A ‘correction’ is outlined as a fall of 10-20% from a current excessive. It shouldn’t be confused with a ‘crash’.
Analysis by Artbuthnot Latham exhibits that, since 1986, there have been 22 FTSE 100 corrections in comparison with 14 on the S&P500. In line with the funding supervisor, it’s taken wherever between 47 days and 6 years for the UK index to get well its losses. The typical timeframe is 336 days.
If the economic system stays sound — and there’s no signal of company earnings shrinking — then Artbuthnot Latham advises doing little or no. Sadly, there’s nothing that may be achieved to reliably predict the timing of those corrections. The one certainty is that there might be many extra to return over the rest of my investing lifetime.
Taking motion
If an investor believes a correction’s imminent, one possibility is to put money into extra defensive shares. These are, typically talking, comparatively immune from an financial slowdown.
Utilities and supermarkets, together with Tesco (LSE:TSCO), are good examples.
In line with information from Kantar, since July 2020, Britain’s largest grocery store has retained its market share at 26.5-28.5%. Over the identical interval, the mixed share of so-called discounters Lidl and Aldi has elevated from 13.9% to 19.2%. To paraphrase Mark Twain, stories of Tesco’s demise have been tremendously exaggerated.
However meals retailing’s powerful. The market’s extremely aggressive, price-conscious prospects are sometimes disloyal and margins are skinny.
Nonetheless, I feel Tesco’s in good place to deal with no matter’s thrown at it. It’s predicting free money stream of £1.4bn-£1.8bn this yr. And at 6.3%, its five-year development charge in earnings per share comfortably beats that of, for instance, J Sainsbury. Additionally, its dividend yield’s just about in step with the FTSE 100 common.
For these causes, I feel Tesco’s a inventory that buyers frightened of a market correction – and others too – may take into account including to their portfolios.
