The summer is well and truly here. Yet just because schools are soon to break up and most of us have one eye on that summer holiday, it doesn’t mean investors can simply forget about the stock market. Here are three points I’m noting down to be aware of for the month ahead.
Get ready for a slowdown
Particularly in the second half of the month, activity in the market decreases. This is simply because a lot of those active in the market take a holiday. It might sound overly simplistic, but it’s true. Whether a hedge fund manager trading millions or a wealthy banker advising clients, people still take a summer break.
As a result, we do typically see lower transaction volumes in the stock market at the end of July and into August. This should continue this year, but the impact is less certain. Regarding the entire FTSE 100, the index should be less volatile.
However, with smaller individual stocks, summer can cause more erratic movements. This is because due to lower trading volumes, one large buy or sell order can have a material impact on the share price. This is something that needs to be watched out for.
No Bank of England, but watch for inflation
The Bank of England also uses July as a break, so there will be no central bank meeting to change interest rates. Yet this doesn’t mean that people won’t still be speculating on future changes and what this could mean for the stock market.
Given that inflation is a key driver in the setting of interest rates, eyes will be on the June figures which come out on Wednesday 19 July. They should fall lower than the 8.7% previous reading, but we’ll have to see — such expectations didn’t work out with May’s figures!
A drop should see a jump in the stock market, while signs that inflation is increasing will likely push the FTSE 100 lower.
Dividend stocks in vogue
For July, I expect to see dividend stocks being bought heavily by investors. This is because people are conscious that inflation is still high and eroding the value of excess cash. Further, the cost-of-living crisis is making many think about how to earn passive income outside of their main job. Finally, interest rates might be high, but it’s not easy to actually get that kind of yield on normal accounts from the high street banks.
Earning income from dividend stocks is an appealing option for many investors. I think over the course of the next month, more will buy the likes of BT Group, Lloyds Banking Group and Glencore. All of these currently have a dividend yield in excess of 5.5%.
Investors do need to be aware of the risks involving income stocks before buying. This includes the lack of a guarantee around future dividends, as it’s dependent on earnings.
