Share prices in both the UK and the US are down since the start of the year. But there’s a lot to keep an eye on in the stock market right now.
Three things have been weighing on stocks this year. The first is inflation, the second is rising interest rates and the third is corporate earnings.
A number of companies provide earnings reports in November. But in my view, the best chance of a stock market recovery this month is from inflation readings and interest rate decisions.
Interest rates
Central banks in both the US and the UK are set to announce interest rate decisions this week. The US Federal Reserve announcement is scheduled for tomorrow and the Bank of England’s news is set for Thursday.
This is the first major opportunity for a stock market recovery in November. Good news about interest rates could cause share prices to pick up.
The announcements themselves are unlikely to cause much surprise. I’m expecting interest rates to rise broadly in line with expectations that US rates will reach 4% and UK rates will reach 3%.
I think that there’s some scope for good news, though. If either central bank indicates that it might be looking to slow the pace of interest rate increases, then share prices might well start to climb.
According to Warren Buffett, interest rates are like gravity for stocks. They keep share prices down and their effect is inescapable.
That’s why I think good news around them might mean the start of a stock market recovery in November. But the biggest chance comes later this month.
Inflation
While interest rates impact the stock market, I think inflation data is much more important right now.
Central banks have been increasing interest rates to try and bring rising prices under control, but with little success yet.
In the UK, the most recent inflation reading was 10.1%. In the US, things aren’t much better, with price increases at 8.2%.
Since June, the inflation rate in the US has come down steadily from 9.1% to the current level. If that positive momentum can continue, then this could be good news for stock prices.
The pattern in the UK has been less encouraging. So far, inflation hasn’t been showing any signs of reverting back to the Bank of England’s target level.
To my mind, that means there’s plenty of scope for encouraging news. Any sign of price rises stalling or reversing could help kick off a stock market recovery.
Should I buy stocks in November?
I don’t anticipate a meaningful stock market recovery any time soon, though I wouldn’t be surprised to see a small move higher in the near future. So should I buy stocks in November?
When I invest, I try to focus on the business I’m buying shares in as well as the price I have to pay. As long as I think I’m getting a good deal, I try not to worry about where the stock market will go next.
Regardless of whether share prices go up or down this month, I think there are some good opportunities for me right now. As a result, I’ll be buying stocks this month.