Here’s what our Fools expect from the stock market in H2 2023

A look-ahead to the next six months in the stock market — while retaining a long-term investing perspective, of course!

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

White note with '2023' written on, pinned to a yellow background

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

While it should be well known that here at The Motley Fool, we have a minimum investing time horizon of three to five years, we remain keen observers of macro events that may affect the stock market in the short term. For this reason, we asked some of our contract writers for their predictions now we’re in the second half of the calendar year.

It’s all about rates

By Jon Smith. I feel that H2 is going to be characterised by a divergence between those most and least impacted by high interest rates. It’s clear that the Bank of England are going to keep hiking rates in the next six months.

This creates some stock market losers, such as property-related companies. Higher mortgage rates are going to reduce housing demand, as consumers simply can’t afford to become first time buyers.

On the other hand, I believe investors will be keen to snap up stocks with little or no debt. This means that the firm isn’t exposed to having to raise new debt or borrow funds at the high interest rate. In turn, the low interest expenses should filter down to more profit.

Finally, for some areas I’m still on the fence. Banking stocks should benefit from making a larger net interest margin. Yet if retail customers start defaulting on loans, it could negatively impact the profit and loss account overall.

Bearishness to continue before the rebound

By Royston Wild. How quickly global inflation continues to fall, and the willingness of central banks to cool breakneck price rises, has dominated stock market performance in the first half of 2023. These twin problems will likely keep determining the direction of share prices during the second half and perhaps beyond.  

The story so far in the UK is that of forecast-beating inflation and a steady increase in interest rate estimates. Economists now expect a peak rate of 6.5% by next spring, up from roughly 4% that they were predicting at the start of the year.  

Concerns that US inflation will keep running hot is also weighing on investor confidence. Strong job market reports last week suggest that the Federal Reserve — like the Bank of England — may continue raising interest rates for longer. In this landscape, the chances of a worldwide recession are very much alive. 

The FTSE 100 and FTSE 250 have fallen 3% and 23% respectively since the turn of 2023. Key economic data suggests that more pain could be coming in the months ahead, though I’m confident that stock markets will recover over the long term. 

Global share prices have always rebounded following previous macroeconomic and geopolitical crises. But remember, there’s no guarantee that past rallies will be repeated.

My FTSE 100 prediction: modest gains

By John Choong. Where the FTSE 100 lands up by the end of the year will depend on how quickly inflation dissipates. This will be one of the core catalysts needed to dissolve the headwinds UK companies are currently experiencing — a strong Pound.

Apart from that, a stronger recovery in the Chinese economy will be necessary to help lift commodity prices up. This would be key to encourage inflows back into FTSE 100 stocks given the index’s heavy weightage towards commodities, industrials, and financials.

Cooler-than-expected inflation prints may help to lift the FTSE 100 from its current slump. And with the FTSE 100 currently trading at a P/E of 9, a move further down is unlikely as value investors will swoop in to provide some support to UK stocks’ already-low valuations. Nonetheless, it’s worth noting that any recovery could be very quickly undermined if geopolitical tensions continue to heighten. 

A UK stock to fare well in H2 and beyond

By Dr James Fox. Hargreaves Lansdown (LSE:HL.) generates revenue through platform fees, fund management fees, income from cash balances, and other services.

It was among the best-performing UK stocks during the pandemic as interest in investing heightened among retail investors, who understandably had more time — and money — on their hands.

However, this side of the business has since experienced a slowdown. Although it’s perhaps been more robust than many expected given the cost-of-living crisis, H2 might further test this robustness.

So, why am I bullish about Hargreaves Lansdown? Well, the Bristol firm generates income on customer deposits primarily through interest earned on these cash balances.

When customers hold cash in their Hargreaves Lansdown accounts, the company may invest those funds in interest-bearing instruments such as money market funds or short-term government bonds.

With Bank of England rate pushing as high as 7% this year, Hargreaves is well positioned to take advantage. The net interest windfall should be more than enough to make up for slowing investor activity.

Dr James Fox owns shares in Hargreaves Lansdown.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

The Motley Fool UK has recommended Hargreaves Lansdown Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

Here’s how to invest £180 per week in an ISA to target a £9,343 second income

By investing less than a couple of hundred pounds each week into an ISA, this writer thinks he could build…

Read more »

Investing Articles

Here’s how I’d invest £200 per month to target a passive income of over £7,100!

Christopher Ruane walks through the mechanics of putting a couple of hundred pounds each month into shares to earn passive…

Read more »

Young Woman Drives Car With Dog in Back Seat
Investing Articles

£9,000 in an ISA? Here’s how I’d aim to turn it into a £10,207 annual second income

Our writer highlights a high-quality ETF that he thinks could help lay a solid foundation for a sizeable future second…

Read more »

Buffett at the BRK AGM
Investing Articles

With a spare £30 a week, I’d use the Warren Buffett approach to building serious passive income!

By learning some lessons from billionaire investor Warren Buffett, this writer aims to build passive income streams using modest regular…

Read more »

Investing Articles

If I’d invested £10k in the FTSE 100 25 years ago, here’s what I’d have today

Has the FTSE 100 been a winner over the last 25 years? Muhammad Cheema takes a look at this and…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

I’d aim for a million buying just 9 or 10 shares

Our writer explains why he believes careful selection of not that many quality blue-chip shares could help him aim for…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

£7,000 in savings? Here’s how I’d aim for almost £2,000 a month in passive income

With only a few thousand in savings and £100 to invest a month, our writer considers a strategy to aim…

Read more »

Investing Articles

4 great purebred UK shares that don’t rely on the US economy

UK stocks or American shares? Despite fantastic performance from US markets in recent years, the answer may not be as…

Read more »