The FTSE 100 broke above 7,400 points yesterday afternoon, reaching the highest level since early September. It has gained around 500 points in just the past month, with various reasons for the stock market rally. Despite some concerns still being out there, the market could keep moving higher. If I see continued momentum, here are the stocks that I’ll buy.
Pivot to growth stocks
One of the major reasons for the recent gains is the thinking that inflation is starting to peak. In the UK, inflation has stalled for the past three months around the 10% level. Even though this is high, it isn’t increasing from this level.
In the US, October inflation actually dropped unexpectedly to 7.7%. This is helping to boost stocks globally as it means that interest rates might not be raised as much in coming months. In turn, lower interest rates help to fuel economic growth.
If this theme continues, I think growth stocks will be the ones that could benefit the most. This is because these companies are those that depend the most on economic growth to support lofty revenue and profit targets.
Within the FTSE 100, some of the growth stocks I’m referring to are Rightmove, Entain and JD Sports Fashion. All of these companies have gained at least 19% in the past month, even though over a broader one-year period all are down.
Political turmoil starting to ease
Another reason for the market bounce is due to less political uncertainty. The brief crash from the mini budget from the ex-Chancellor will go down in history, unfortunately for the wrong reasons. Yet with the Autumn statement due later this week and the new Prime Minister seeming to have a much more stable grasp of his party, the FTSE 100 feels less twitchy.
Should the budget this week outline responsible fiscal spending and taxation measures, I think the stock market will take it positively.
For this eventuality, I’ve added some stocks to my watchlist that could stand to benefit from spending measures or related points. These include BAE Systems and Rolls-Royce for defence projects. I’ve also added Taylor Wimpey, which could benefit from any package designed to help boost the property market.
Keeping a close eye on the FTSE 100
So far this year, the FTSE 100 has struggled to move above 7,600 points. It has tried to do so on several occasions. Therefore, the main risk to my plan is if the market tries and fails again to move beyond this price.
To reduce this, I’m building my watchlist at the moment of stocks that I’ll buy. But I’m going to wait for the next couple of weeks to see how political events and economic data come out. If these are positive and the market continues momentum beyond 7,600 points, I’ll deploy my cash and invest.
