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Will FTSE shares crash again in 2023?

Businesswoman calculating finances in an office
Image source: Getty Images

I think there’s a good chance that investors in London-listed FTSE shares will fare well in 2023.

Nothing is certain or guaranteed with stocks though. And that’s because all businesses can face operational setbacks at any time. And wider economic and geopolitical events will likely keep affecting the markets.

But the volatility during 2022 masks some trends that are arguably positive. For example, interest rates have finally risen above the ultra-low levels they’ve languished at for so long. And although higher rates may be difficult for borrowers in the short term, the move higher marks a return to levels closer to historical norms.

In theory, higher interest rates make it more expensive to borrow money and attractive to save instead. And people will tend to spend less putting a bit of a braking action on price inflation. Indeed, financial commentators have been predicting a slowing of the inflation rate for 2023.

Lower valuations

But a higher base interest rate tends to cause asset bubbles to deflate as well. And we’ve already seen valuations compressing for many stocks and shares. Cryptocurrencies have been in retreat as well. And the latest news from the property market suggests prices may be falling.

All that adds up to short-term pain for investors. But I reckon the situation is positive for the longer term. And that’s because much of the speculative froth has now been blown from valuations. Indeed, there’s a lot of gloomy sentiment in the investing community. But market crashes tend to happen when stocks have been flying along and everybody thinks they’ll keep going up.

However, 2022 has been a difficult year for stocks and shares. And, to me, that means the ideal conditions for a stock market crash are not present. Instead, the path of least resistance looks like it may be for stocks to move higher. And such a move will likely be driven by recovery and growth in the businesses behind them.

I know forecasters have been predicting a long recession for the UK economy. But it’s important to remember that stocks and shares are not the economy. The stock market looks ahead and is always trying to anticipate future events and not immediate ones.

And the most likely outcome is the economy will recover from a recession. And that will be positive for businesses. So it makes sense to me that stocks and shares will move higher from their current low bases during 2023.

The market has reset

The volatility in 2022 has done investors a favour. It’s reset the stock market and purged excessive valuations. And, to me, there hasn’t been so much upside potential for stocks and shares in years.

I think it’s a great time to invest in carefully chosen shares backed by quality businesses that have decent recovery and growth prospects. And I’d aim to hold my stocks for the long haul.

I don’t believe FTSE shares will crash again in 2023. Instead, I’ve been embracing the risks that come with shares. And I’ve been buying them to expose my portfolio to the upside potential of businesses.

The post Will FTSE shares crash again in 2023? appeared first on The Motley Fool UK.

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Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Motley Fool UK 2023