We can all agree that the current conditions are no walk in the park, and we’re all due for some well-deserved relief. However, prices are still rising; the Bank of London and many other central banks are raising interest rates, and their main concern seems to be slowing economic growth even more. This begs the question, when will the stock market turn bullish again?
We wish there were an easy answer, and we can tell you soon, but the situation is more complicated than that. Since the stock market hit bullish levels mid this year, investors have been fearful, and for good reason, which has created a lot of uncertainty. Experts such as Gregg Bassuk, the CEO of AXS investments, have been quoted as saying that inflation will be the investor’s narrative until the end of the year.
Such sentiments have been a source of volatility and the wild swings we’ve seen this year. Furthermore, indexes such as the S&P 500 and the Dow Jones rose by 8% and 14% consecutively this month but are still on track to record one of their worst performances since the great depression. November is also one of the strongest-performing months for stocks in a calendar year. This time, according to experts, the S&P 500 will perform better than 60% of all Novembers since 1929 but will only post average gains of about 0.8%.
However, with the war in Ukraine, the energy crisis in Europe and other parts of the world, and the fact that we’re just inching out from the effects of the lockdown. It’s hardly surprising that the markets have turned bearish and that this is happening now. But things should improve once the Bank of London starts to ease off on its inflationary control measures.
Wait for the Pivot
Economic reports from the Federal Reserve in the US show that we are yet to hit peak inflation rates. This is where prices get to their highest before dropping again. However, accurately predicting when this will happen is as hard as telling when stock prices are too overpriced or undervalued. Regulators rely on investors’ sentiment on some of the best UK stock brokers platforms as much as they do on data to make the call.
But as things stand, interest rates are expected to go up this year, which means a bullish market is still not on the horizon. Unfortunately, consumers and investors alike will have to put up with the market’s high prices and low returns for a few more months. Furthermore, central banks are about to have their final meeting of the year to discuss what to do with the interest rates on Dec 13th and 14th.
Their decision will be highly influenced by the recent inflation reports and the consumer price index, but the consensus is that they will raise the rates again. Another pressing concern is how market fundamentals, such as corporate revenues and earnings, will look this year. There is fear that high overheads from wages and higher market prices will hurt most companies’ bottom lines and reduce their ability to maintain previous numbers.
But all is not doom and gloom. Using historical data, we can see that after inflation peaked in December 1974, the S&P 500 turned around to make a 37% annual return rate after having reported a 26% loss the year prior.
Therefore, as you hunker down for the end of year’s festivities, be it a colder holiday season if you’re in Europe. Also, celebrate the fact that a reversal is inevitable, and be ready to take full advantage of the opportunities it will present.
What To Expect
There is no other way to put it, but things are tough for the average British person. However, this is not just a UK phenomenon but a prevailing sentiment all over the world. The high prices and low yields from traditional investments, such as stocks caused by inflation, have hit us all hard and got us all thinking about when the situation will change. Unfortunately, we don’t have a clear answer as to when the stock market will turn bullish again, or the economic conditions will improve.
But if history is anything to go by, the market will rise, and things will get better in due time.
