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?

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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%
JapanTOPIX5.5%
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!

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