The stock market has had a rough time recently. Despite the FTSE 100 rising 3% last week, the UK’s largest share index is down almost 5% from a month ago.
So, what factors could put stocks back into bull territory? And is now a good time to invest? Let’s take a look.
How has the stock market performed so far in 2022?
If anything, 2022 has been the year of gold (so far). The precious metal is up 7% since the year began.
Many investors turn to scarce, fixed commodities during uncertain economic times with the hope of preserving wealth. Investing in these assets also allows investors to dodge the choppy waters of the stock market during such times.
It’s fair to say that investors who have used this ‘tried and trusted’ method over the past few months have been bang on the money. That’s because, in stark contrast to gold, the UK’s largest share indexes are both down significantly since the year began. The FTSE 100 is down 4% since January, and the FTSE 250 is down a massive 14% over the same period.
Remember, these falls come just months after a stellar 2021 for the stock market. The FTSE 100 rallied 14.3% last year – its best performance since 2016. The FTSE 250 gained a similar 14.6% in 2021, though it has since lost pretty much all of this gain.
What 3 events could send the stock market soaring?
If your portfolio has taken a hit recently, take comfort in the fact that 2022 is still young. Here are three events that could send stocks back into the green.
1. The end of the war in Ukraine
The saddening events unfolding in Ukraine have had a huge impact on the stock market in recent weeks. If the war remains unpredictable, then it’s likely the stock market will mirror that volatility as investors try to weigh up the true impact on the global economy.
However, according to reports on Sunday 13 March, peace could be on the horizon following ‘substantial progress’ in recent talks between Russia and Ukraine. Should the war end, or a long-term ceasefire be agreed, then we could potentially see global stocks rally. That’s because such an event would enable investors to put aside ‘worst-case scenario’ fears.
2. Signs of slowing inflation
Rising inflation is generally bad for investors. It puts pressure on household budgets, which can harm consumer spending power. This can understandably impact businesses.
On a similar note, rising inflation puts pressure on the Bank of England to raise its base rate in order to curb rising prices. The bank last did this in February.
Whenever interest rates rise, borrowing costs go up, which can make businesses reluctant to invest. It can also add uncertainty to the wider economy. Both of these factors can harm share prices.
The latest figures suggest the UK’s inflation rate will continue to rise beyond its current level of 5.5%. However, the ONS will reveal updated figures on Wednesday 23 March. Should the update reveal that inflation is slowing, then this may indicate that the UK economy is on the mend.
If this happens, then it will reduce the chances of the Bank of England raising its base rate again, providing more economic certainty. In such circumstances, stocks could rally.
3. Improved job data
The latest ONS Labour Market Overview report that looks at the final quarter of last year reveals the UK’s employment rate increased by 0.1%. The report also says the number of self-employed workers remains low following decreases seen during the pandemic.
However, the next report is due on Tuesday 15 March. This will look at much more recent data. If UK job figures are better than expected, then investors may be more confident of the prospects for the UK economy.
Is now a good time to invest?
While there’s a chance the stock market will rise later this year, any informed investor will tell you that share prices are unpredictable. When the stock market falls, it is equally as likely to fall again as it is to rise.
As a result, if you’re looking to invest, it’s best not to try to ‘time the market’. Instead, it’s wise to take a long-term approach. For more on why this is important, see The Motley Fool’s guide that explains the benefits of long-term investing.