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Less than a month ago, fears of a recession caused problems in stock markets around the world. But after a slight dip earlier this month, prices have come back stronger than ever.
Now, central banks and consumers think that a recession in 2024 is impossible. Does that mean we could see a new convention appear in 2025? Everything is possible!
So I added two new stocks to my portfolio: one for protection, and one to benefit from the market's recovery.
The safe(r) option.
I may be feeling optimistic about global markets but I'm not stupid. There is a lot going on in the world right now and a lot can disrupt economic stability. With conflicts escalating in Europe and the Middle East and a potentially disruptive US election looming, who knows what could happen?
So I chose to redirect some of my money to the safe and warm welcome of a well-established investment trust.
Scottish Mortgage Investment Trust (LSE: SMT) has been a favorite of UK investors for decades. I had been planning to buy stocks for a long time and the recent market uncertainty made me take the plunge. I became confused about my US technology stock allocation and decided that a diversified investment trust would better protect my money.
Ironically, Scottish Mortgage owns some of the US stocks that I have sold, such as Nvidia again Meta. But its vast portfolio of 37 assets spans several regions and industries. This often helps reduce the risk of loss due to a single stock failure.
The trust went through a very volatile period in the post-Covid years. Although most of the world's markets are known, their price has increased by 150%. But after peaking in late 2021, it has fallen back to pre-Covid levels. Last year was stable, the price increased by 34%.
Investment trusts don't usually suffer that way, so I'm careful to over-allocate them. This is because the trust uses power, it takes a lot of risk when the markets go down. It is also heavily weighted towards growth stocks in the technology sector, which can be volatile.
Still, I like the diverse nature of its portfolio and am interested to see how it fares in the coming years. With a price increase of 1,400% in the last 20 years, I feel confident enough that its management knows what they are doing.
Building the UK's future
Taylor Wimpey (LSE: TW) is a stock I chose to buy for a completely different reason. I believe the housebuilder will benefit greatly from the new Labor government. With policies aimed at speeding up approvals, Taylor Wimpey's global bank may enjoy renewed growth.
I hope I'm right — because recent performance has been weak. In its first-quarter earnings results released earlier this month, revenue and earnings were down 7.3% and 59%, respectively. Earnings per share (EPS) now stand at 2.1p, down from 5p this time last year.
But it seems I'm not the only one with a future for the company. With shares up 12% since Labor took office, it has recouped most of its losses in 2022. That gives me more confidence that it can maintain its 5.8% yield – another outstanding feature that attracted me to the stock.
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