Here’s what our Fools expect from the stock market in H2 2023

While it should be well known that here at The Motley Fool, we have a minimum investing time horizon of three to five years, we remain keen observers of macro events that may affect the stock market in the short term. For this reason, we asked some of our contract writers for their predictions now we’re in the second half of the calendar year.

It’s all about rates

By Jon Smith. I feel that H2 is going to be characterised by a divergence between those most and least impacted by high interest rates. It’s clear that the Bank of England are going to keep hiking rates in the next six months.

This creates some stock market losers, such as property-related companies. Higher mortgage rates are going to reduce housing demand, as consumers simply can’t afford to become first time buyers.

On the other hand, I believe investors will be keen to snap up stocks with little or no debt. This means that the firm isn’t exposed to having to raise new debt or borrow funds at the high interest rate. In turn, the low interest expenses should filter down to more profit.

Finally, for some areas I’m still on the fence. Banking stocks should benefit from making a larger net interest margin. Yet if retail customers start defaulting on loans, it could negatively impact the profit and loss account overall.

Bearishness to continue before the rebound

By Royston Wild. How quickly global inflation continues to fall, and the willingness of central banks to cool breakneck price rises, has dominated stock market performance in the first half of 2023. These twin problems will likely keep determining the direction of share prices during the second half and perhaps beyond.  

The story so far in the UK is that of forecast-beating inflation and a steady increase in interest rate estimates. Economists now expect a peak rate of 6.5% by next spring, up from roughly 4% that they were predicting at the start of the year.  

Concerns that US inflation will keep running hot is also weighing on investor confidence. Strong job market reports last week suggest that the Federal Reserve — like the Bank of England — may continue raising interest rates for longer. In this landscape, the chances of a worldwide recession are very much alive. 

The FTSE 100 and FTSE 250 have fallen 3% and 23% respectively since the turn of 2023. Key economic data suggests that more pain could be coming in the months ahead, though I’m confident that stock markets will recover over the long term. 

Global share prices have always rebounded following previous macroeconomic and geopolitical crises. But remember, there’s no guarantee that past rallies will be repeated.

My FTSE 100 prediction: modest gains

By John Choong. Where the FTSE 100 lands up by the end of the year will depend on how quickly inflation dissipates. This will be one of the core catalysts needed to dissolve the headwinds UK companies are currently experiencing — a strong Pound.

Apart from that, a stronger recovery in the Chinese economy will be necessary to help lift commodity prices up. This would be key to encourage inflows back into FTSE 100 stocks given the index’s heavy weightage towards commodities, industrials, and financials.

Cooler-than-expected inflation prints may help to lift the FTSE 100 from its current slump. And with the FTSE 100 currently trading at a P/E of 9, a move further down is unlikely as value investors will swoop in to provide some support to UK stocks’ already-low valuations. Nonetheless, it’s worth noting that any recovery could be very quickly undermined if geopolitical tensions continue to heighten. 

A UK stock to fare well in H2 and beyond

By Dr James Fox. Hargreaves Lansdown (LSE:HL.) generates revenue through platform fees, fund management fees, income from cash balances, and other services.

It was among the best-performing UK stocks during the pandemic as interest in investing heightened among retail investors, who understandably had more time — and money — on their hands.

However, this side of the business has since experienced a slowdown. Although it’s perhaps been more robust than many expected given the cost-of-living crisis, H2 might further test this robustness.

So, why am I bullish about Hargreaves Lansdown? Well, the Bristol firm generates income on customer deposits primarily through interest earned on these cash balances.

When customers hold cash in their Hargreaves Lansdown accounts, the company may invest those funds in interest-bearing instruments such as money market funds or short-term government bonds.

With Bank of England rate pushing as high as 7% this year, Hargreaves is well positioned to take advantage. The net interest windfall should be more than enough to make up for slowing investor activity.

Dr James Fox owns shares in Hargreaves Lansdown.