The weather is getting warmer and the bank holidays are rolling in as we hit the month of May. Yet from an investor perspective, there are plenty of points to watch out for in the stock market this month. Here are my top ones and my current predictions for how they will play out and impact stocks in coming weeks.
Another hike from the central bank
The first big one is the Bank of England meeting next Thursday. My prediction is that the central bank will raise interest rates from 4.25% to 4.5%. I feel this could weigh on the stock market and could mean a knee-jerk reaction sending stocks lower on the day.
My thinking behind this is that the bank knows inflation is still far too high (above 10%). To get this down, more interest rate increases are needed. Yet this will likely be negative in the short term for the stock market. This is because higher interest rates make it more expensive for companies to borrow and finance debt.
Further, the UK economy is very sensitive to rate increases. It’s a fine balancing act to try and reduce inflation without pushing the UK into a recession this year. No one quite knows at what rate comes the tipping point.
Two areas that could outperform
My second prediction for May is that the two sectors to outperform will be property and travel.
Earlier this week, the monthly Nationwide survey showed property prices rose by 0.5% in April, the first rise in seven months. Other news stories have commented on strong rental demand, particularly in London.
I think this bodes well for property associated stocks like Rightmove to gain momentum.
As for travel and airline stocks, we’ve had several issuing trading updates in recent weeks. Most have reported strong summer bookings, higher than last year. I think now could be a good time to buy stocks (such as Jet2), especially if more positive reports come out.
The risk to my prediction is that we could see both sectors take a hit on the day that the Bank of England raises interest rates. Both sectors are exposed to rising rates, particularly the property market. However, a dip following the meeting could provide a great buying opportunity.
A market boost from lower inflation
My last prediction relates to the end of the month. I believe that the stock market could get a surprise jump following the release of the April inflation report on Wednesday, 24 May.
This won’t impact the Bank of England decision, as this comes well before the report gets released. Yet I think inflation will have fallen month on month. My thinking is based on lower used car prices and easing energy bills. Granted, this is my personal opinion. Yet in order to make a prediction, I have to have a view!
If we do get a lower inflation figure, it should help to lift the stock market. It would signal the potential future easing of cost pressures on companies, helping to boost future profitability.
