As we approach the end of the first half of the year, investors will no doubt be looking ahead to the future, in a bid to gauge a rough idea of how global stock markets may play out before the end of H2 for the trading year.
Make no mistake about it, 2022 was a painful year for investors all across the globe. With record-breaking inflation, Russia’s invasion of Ukraine, out-of-control energy cuts, interest rate hikes, and a British Conservative government temporarily crashing the British economy with their “mini budget” stocks and shares worldwide took a pounding.
The S&P 500 for example, recorded one of its worst trading years in close to a century, falling by 19%. In the UK, the FTSE 100 fared a little better, but still recorded losses of -0.84%.
2023 however, was much better and saw the markets rally. As we headed into 2024 therefore, investors were cautiously optimistic that the markets would continue to rally, and perhaps record their biggest gains so far. That is precisely what happened.
As we approach H2, what is the outlook for the end of the year, and what can investors expect from the stock markets through summer and beyond?
A Bullish Outlook?
If 2022 was the year of the bear, could 2024 be the year of the bull? Well, analysts certainly think so, and going from how global markets have performed during H1, it certainly looks that way.
Business experts are cautiously optimistic that factors that helped to propel stocks to temporary record highs through Q1 and Q2, will still be driving forces for stocks to make impressive gains.
Inflation worldwide appears to not only be coming down, but holding steady, indicating that monetary regulators such as the FED and the Bank of England’s plan to curb inflation by hiking interest rates appears to be working. Why is this promising? Because it means that interest rate cuts are likely.
In the UK, at the start of the month (August, 2024) the Bank of England announced their first cut to base interest rates of 0.25% taking interest rates in the UK from 5.25% to 5%. The FED however, has so far remained more stubborn, but we’ll get to that later.
There is also the fact that modest earning acceleration is continuing, with the S&P 500 predicted to see gains of between 0.5% and 4.6% finishing between 5.500 and 5.725. At the start of August, it stood at 5.446.68 so predictions on the higher end look more likely.
A Bumpy Ride Ahead
As optimistic as the outlook for the remainder of the year may be, investors can strap themselves in and expect a bumpy ride before New York rings that bell to signify the end of trading for the year in December.
While inflation is falling, in the U.S it isn’t falling as quickly as the Federal Reserve may have hoped, with the rate currently standing at 2.89%, which is just a smidge above their target of 2%. Because of this, they are stubbornly holding off on cutting interest rates, leading to a great deal of anxiety in the markets.
Market analysts and business experts are concerned that, if the FED doesn’t announce interest rate cuts soon, this could have devastating effects on the economy and plunge the US into recession. There are also other factors which could enter the fray.
Earlier this month, on August 5 for example, markets saw a significant downturn which analysts feared could ‘play out as a significant market event’. Now, historically speaking, financial crises often happen in late summer. Needless to say, when many of the markets entered correction territory, this set alarm bells ringing. August is usually a fairly quiet trading month for the markets. When it starts off calm, it tends to finish calm. At the start of the month however, trading could be described as a lot of things, but ‘calm’ was not one of them.
Fuelled by growing fears that the US could be heading into recession with the triggering of the ‘Sahm Rule’ as unemployment rates rose from 4.1% to 4.3%, followed by the largest one-day drop on the Japanese stock market in close to four decades, and concerns that the FED could wait to long to cut interest rates, this triggered a global sell-off, causing stocks worldwide to plummet.
Now, since then, markets have rallied, and grown fairly quickly, but it shows that trading for the remainder of the year will likely be anything but smooth sailing.
The Presidential Election Should Influence Things
At the end of July 2024, American President Joe Biden officially dropped out of his re-election bid, paving the way for a showdown between former President Donald Trump, and Vice President Kamala Harris.
The markets seemed to respond favorably to this news, and the fact that this is an election year in the U.S could prove promising for investors. While past performance is of course not indicative of future performance, historically speaking the stock markets tend to perform very well for the remainder of the year following a Presidential Election.
Stock markets hate uncertainty, so regardless of the outcome, they know that one way or another they’ll have a new President. This tends to result in impressive gains and a Santa Claus Rally in December.
More Diversity
Going back to the stock market correction at the start of August 2024, another driving force which influenced the mass sell-off was concern that tech stocks may be overvalued.
Prior to the correction, the tech-heavy NASDAQ Composite had enjoyed all-time highs, gaining +18.6% in H1 of 2024. As we entered H2 however, tech stocks began to look shaky again, with fears that the “AI bubble” had burst, and that heavy hitters such as Nvidia may have peaked, tech stocks began performing less impressively, eventually resulting in the correction at the start of the month.
To help protect themselves against market vulnerability, investors are looking to diversify their portfolios for the remainder of 2024 and look for stocks in other sectors and areas such as small-cap stocks and undervalued stocks. The gains from these stocks may be less modest, but they may protect against the vulnerability from any tech-heavy stocks, particularly AI stocks, which experts believe are becoming increasingly overvalued.
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