Could we be seeing the beginning of a fresh stock market recovery?
My Stocks and Shares ISA has taken a battering over the past couple of years. It tanked in 2020 when Covid-19 exploded across the globe and UK stocks collapsed in value. And in 2022 a mix of soaring inflation and rising interest rates battered it again.
So you can imagine my elation seeing my stocks portfolio soar in value more recently. UK share prices are rising again and the FTSE 100, for instance, just closed at its highest since early June.
But can the recent stock market rebound continue? And is now a good time to buy stocks?
What’s happened?
There’s little doubt that a stream of positive trading updates — and particularly so from the US — have helped to lift stock markets.
The likes of Microsoft, Apple, Tesla, Amazon, and eBay have all published forecast-beating statements over the past month. In the UK, meanwhile, Lloyds, Unilever, and Reckitt are among a number of FTSE 100 firms to release better updates than the market had been expecting.
These names are important as they are used to gauge the health of the economy. Sure, the numbers are backward looking. But they can suggest that the impact of rising inflation and increasing interest rates isn’t as bad as feared.
Buying on the dips
There’s also evidence that strong dip buying has helped to boost stock markets more recently.
A famous investing metaphor is that, “a rising tide lifts all boats”. The same can be said when the tide falls, in other words, when financial markets drop. During times of panic even the most solid stocks tend to be sold alongside more vulnerable companies.
This provides an opportunity for eagle-eyed investors to nip in and grab a bargain. It’s a strategy that has helped legendary investor Warren Buffett make billions. And the quest for finding oversold companies has picked up as broader risk appetite has improved.
So what next?
It’s hard to guess short-term share price movements at the best of times. The task is even more difficult today given the pounding that investor confidence has taken throughout 2022.
What’s clear, though, is that several factors are in play that could send stock markets lower again. These include:
- Prolonged high inflation and harsher-than-expected interest rate rises
- Spiking oil prices as supply fears worsen
- A new surge in Covid-19 cases
- Fresh trade wars as US-China relations deteriorate
What should I do?
I myself have continued buying UK shares throughout 2022. And I plan to continue adding to my Stocks and Shares ISA regardless of whether or not the stock market recovery continues.
This is because I buy a stock to hold for the long haul, say a decade or more. Over such a prolonged timeframe, short-term market volatility tends to have a minuscule impact on eventual returns. As they say, the cream eventually rises to the top. And I’m confident that the shares I’ve bought in 2022 will deliver exceptional returns in the years ahead.
In fact, if the stock market recovery runs out of steam and share prices fall again I’ll be looking to buy more beaten-down bargains.