Did a ‘massive stock market rally’ begin on 27 October?

The past month has seen a huge stock-market rally, with US shares leading the way. Could this be the start of the next big bull market for investors?

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.

Young brown woman delighted with what she sees on her screen

Image source: Getty Images

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.

Go back one month and global stock markets were looking feeble. In late October, the US stock market had fallen back to its lows of May, meaning no gains over five months.

Likewise, the FTSE 100 index was flirting with lows around 7,200 points seen in early July and late August. However, since 27 October, the market flicked the switch marked ‘RISK ON’, with stock markets surging over four weeks.

A new stock market rally?

I’m surprised at the strength of this latest relief rally. For example, the S&P 500 has leapt by 10.5% since 27 October. This puts November on track as the best month for the US stock market since July 2022.

Alas, the FTSE 100 has lagged far behind its American counterpart yet again. Since 27 October, the UK index has risen by 2.4%, falling behind other major stock markets, as shown below.

Major market movements since 27 October

RegionIndexReturn since 27/10*
USANasdaq Composite12.9%
USAS&P 50010.5%
GlobalMSCI All Country World Index10.1%
USADow Jones Industrial Average8.6%
EuropeSTOXX Europe 6006.5%
UKFTSE 1002.4%
*Sorted from highest to lowest

This shows that US stocks have led the way, with the S&P 500 and Nasdaq Composite both delivering double-digit increases in under a month.

Also, with the US stock market accounting for almost 65% of global capitalisation, this pushed the MCSI ACWI index up by more than a tenth. Even Japanese stocks — already star performers in 2023 — easily beat the Footsie in this period.

What’s going on?

What caused this latest leg up in share prices? Three things spring to mind.

First, US Federal Reserve chair Jay Powell left the Federal Funds Rate unchanged earlier this month. Investors turned positive on this news, hoping that the Fed’s rate-hiking cycle may be ending.

Second, on Tuesday 14 November, US consumer price inflation (CPI) was revealed as 3.2% a year, down from 3.7% in September. This was the first fall in CPI since June, delivering hope that the Fed may stop tightening monetary policy through higher interest rates.

Third, as stock prices surged, hedge funds shorting stocks — that is, betting on further price declines — rushed to close their positions by buying back borrowed shares. This reversal is known as a ‘short squeeze’ and helped boost this latest market comeback.

So has a rally really begun?

Recently, I read a very positive report from a leading US investment bank that predicted a “massive rally” in global stock markets in 2024. Could this powerful upturn have already begun?

To be honest, I’m not so sure. History has taught me that sudden, sharp rises in stock markets often don’t last. And when sentiment and narratives drive stock prices, what happens when these again flip from positive to negative?

That said, interest-rate markets are already pricing in two US rate cuts by mid-2024. If this happens, it would relieve huge pressure on governments, companies and consumers carrying hefty debts.

That said, forecasting the future is inherently problematic, so it’s incredibly difficult to predict when markets change direction. But I do know one thing: the FTSE 100 is looking incredibly cheap, both in historical and geographical terms. And that’s why I’ll keep snapping up cheap UK shares in 2024!

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.

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

Young Asian man drinking coffee at home and looking at his phone
Investing Articles

Here’s how I’d target £496k in FTSE 100 shares and £19k of passive income in a Stocks & Shares ISA

I invest as much surplus cash as I can at the end of the month in my Stocks and Shares…

Read more »

Young Asian man drinking coffee at home and looking at his phone
Investing Articles

Is Rolls-Royce’s share price an irresistible bargain?

Is Rolls-Royce's share price the FTSE 100's greatest bargain today? Royston Wild explains why he would -- and wouldn't --…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

Is the Vodafone share price a wonderful bargain or a horrible value trap?

As the Vodafone share price continues to fall, is it now a stock to buy with a view to a…

Read more »

Hand of a mature man opening a safety deposit box.
Investing Articles

I’d buy 95,239 shares of this banking stock to generate £200 of monthly passive income

Muhammad Cheema takes a look at how Lloyds shares, with a dividend yield of 5.9%, can generate a healthy monthly…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

Can FY results give the Antofagasta share price a long-term boost?

The Antofagasta share price has had a good five years. Now the company says it's set to enter a new…

Read more »

Person holding magnifying glass over important document, reading the small print
Dividend Shares

Can I make sustainable passive income from share buybacks?

Jon Smith notes the rise in share buybacks from FTSE 100 companies, but flags up why they aren't great for…

Read more »

Front view of a mixed-race couple walking past a shop window and looking in.
Investing Articles

After the Currys share price rockets, here are more potential UK takeover targets!

The Currys share price has surged 39% higher in response to news of a takeover bid. Which UK stocks could…

Read more »

Investing Articles

Down 25%, where will the British American Tobacco share price go next?

The British American Tobacco share price has taken a hit. But this Fool isn't deterred. He think's now could be…

Read more »