2022 has been a tough year for investors because share prices have generally been trending down. As a result, many people are asking the same question: ‘When will the stock market go up again?’
Unfortunately, the reality of the situation is that no one knows exactly when shares will rise again. That’s because short-term stock market movements are notoriously hard to predict.
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However, my own take here is that the market will rise again when several things happen. Here’s what I think needs to occur before stocks can resume their upward trend.
So when will shares rebound?
For markets to go up again, the first thing we need to see is inflation start to come down. Right now, inflation is at sky-high levels (around 9% both in the UK and the US) and this is creating all kinds of problems.
Not only is it negatively impacting company profits (which, in turn, is hitting share prices), it’s also impacting consumer spending (which is impacting company revenues). Until inflation comes down substantially, I think equity markets will be volatile.
We also need to see investors regain confidence in the US Federal Reserve. Many keep a close eye on the Fed (whose goal is to keep inflation in the US at a moderate level) because its decisions influence the economy and the financial markets.
With inflation at 9% however, a lot of people believe the central bank has lost control, and this is spooking investors. If the Fed can show it has the tools to deal with inflation, sentiment towards stocks could improve.
An end to the Russia-Ukraine crisis would also be helpful for shares. Right now, this is having a massive impact on energy prices and supply chains – both of which are fuelling inflation.
Additionally, we need to either avoid a recession or, if we do see one, show we are on the way out of it. The big question here is whether the world’s central banks can engineer a ‘soft landing’ and raise interest rates without sending the world into a recession.
Finally, we need to see less profit warnings and downward earnings revisions. At the moment, lots of companies are releasing the former. Meanwhile, many analysts are downgrading their earnings forecasts for companies. This is putting downward pressure on share prices.
So, overall, there’s a lot that needs to happen before markets can enjoy a sustained rally again, in my view.
I’m still buying stocks today
Having said that, this doesn’t mean it’s not a good time for me to invest. At some stage the market will rise again and, when it does, the rebound could be violent. I wouldn’t want to be on the sidelines when stocks start to rally, because the market could easily rise 10%+ in a flash.
If I wasn’t invested, I could potentially miss out on big gains.
It’s also worth pointing out that, while the market could go sideways for a while, there are always going to be opportunities for stock pickers like myself. A good example here is Shell. While the FTSE 100 has declined over the last year, its share price has risen more than 40%.
So while there’s a lot of uncertainty right now, I’m going to stick to my investment strategy and keep buying stocks for my portfolio.