Investors began this year much as they did the last. They again await a change in the interest rate regime, albeit 2023's hope of a peak in rate hikes has been replaced by the belief that cuts are now on the way. A strong end-of-year rally, based on those expectations, has strengthened the resolve of those who think better times lie ahead for UK equities. Last but not least, January has again brought signs that the UK consumer is in better shape than feared.
Some of these hopes were thwarted last year. Base rates did not peak, if indeed they have now done so, until August. UK equity market performance underwhelmed again, particularly at the smaller end of the market, and the FTSE 350 shed 3.8 per cent. On the other hand, the economy did indeed prove more resilient than first thought. That's reflected in many of the leading sectors of 2023. As the data on page 37 shows, the FTSE 350 household goods & home construction sector returned 16 per cent last year, while the average retailer verged on a double-digit return, too.
But while we necessarily divide the index sector-by-sector in this review, we should always recognise that research must go deeper. Glance at any grouping on these pages and the dispersion of returns over the past year will become apparent. The same principle applies to the inclination to decry the UK market as a whole, a practice that has become widespread over the past year. There’s no denying there are real problems, as we have discussed at length in the IC. At the same time, the point we made this time last year still hold true: widespread pessimism invariably means there are opportunities out there that others have missed.