Klaxons don’t sound when a new bull market begins. The turn is only obvious looking back. And bearishness can be at its most intense when the new bull tiptoes in. And it could have already.
Although nothing is certain, this could be one of the most promising long-term stock investing opportunities for years.
Green shoots for the new bull market
But taking advantage of it will require me to focus and tune-out those roaring bears. And my goodness they’ve been vocal!
For example, strategists at Blackrock investment Institute said last week they “see more volatility ahead until central banks take sides in the stark trade-off between growth and inflation they are facing”.
There’s no doubt price inflation is a challenge. And on 4 August, the Bank of England (BoE) announced a rise in the UK’s bank rate by 0.5 percentage points to 1.75%, aimed at fighting the inflation beast. It also delivered a warning that the UK looks like it’s heading for a recession.
However, there were notes of optimism. The BoE said inflationary pressures will likely dissipate over time. And global commodity prices may have already peaked. It also reckons tradable goods price inflation will fall back and “the first signs may already be evident”.
I think these could be the green shoots stimulating a new bull market for shares.
The economy isn’t the stock market
So what happened to the UK’s stock market when the BoE’s recession forecast came out? It went up a bit on the day. And that reaction speaks volumes. The stock market looks ahead, not backwards. And investors have been fretting about the possibility of a recession for months — it’s all likely in the price. It’s worth me remembering that the economy isn’t the stock market.
But over in the US, BlackRock thinks the Fed will likely overtighten rates and cause “acute damage to growth” before reversing its decisions. And similar fears no doubt persist here in the UK.
However, I’m not as pessimistic. Central banks have demonstrated some agility over recent years after learning lessons from the past.
Businesses are coping well
Meanwhile, many companies’ results have been strong. Businesses have been demonstrating resilience and an ability to cope with pressures caused by rising prices. For example, there have been recent positive trading updates from firms such as Unilever, Greggs and Next.
On top of that, lots of commodity prices have been in retreat. And that could feed into finished goods and services and act as a drag on inflation ahead.
I’m not alone in being a cautious bull. John Stoltzfus, chief investment strategist at investment bank Oppenheimer, came out as optimistic last month.
Stoltzfus wrote that the bank’s longer-term outlook for the US economy and the stock market “remains decidedly bullish.” He thinks US economic fundamentals will be “well supported by consumer, investment and government spending.” And that’s despite uncertainty and the risk of recession.
I think there’s read-across for the UK and its stock market from that opinion. After all, wherever the US goes, the UK seems to follow. Meanwhile, my stock portfolio has enjoyed a good month through July. And the early signs are that August could be shaping up well too.
The next bull market may have already begun.