This year, there has been plenty of talk about another stock market crash. A lot of experts have been saying that stocks could return to their October 2022 lows.
For a while there, I was in the bearish camp myself. However, recently, I’ve become far more bullish in terms of the outlook for global equity markets.
With that in mind, here are five reasons I think shares can keep rising in the second half of 2023.
Inflation is coming down
Let’s start with inflation. This is really starting to come down now (in most countries). For example, in the US, CPI inflation came in at 3% for June – the lowest level since March 2021.
This has implications for interest rates, which have put pressure on shares recently. Now that inflation is lower, we’re less likely to see aggressive interest rate hikes from central banks.
The consumer is still spending
Next up, we have consumer spending. This is robust.
I saw this first hand when I was on holiday in France last week. The country was literally swarming with tourists and people were spending money feverishly (I think Mastercard and Visa shares are good plays on travel spending).
One thing that could be helping here is higher interest rates. We often hear about how high rates are hurting some people. What we don’t hear so much about is all the people (like the Baby Boomers) who have a lot of cash savings and are now earning tons of interest.
Robust consumer spending could help major economies avoid recessions.
Many stocks are cheap
Turning to the stock market itself, many shares remain cheap.
The global equity market rally in the first half of the year was largely driven by a handful of tech stocks. There are a lot of stocks that haven’t rallied in 2023, including the likes of Diageo, AstraZeneca, PayPal, and Nike.
This means there’s still scope for gains.
It’s worth noting that we’ve seen an increase in market ‘breadth’ recently, with more stocks starting to rally. This is bullish, to my mind.
There’s money to come into the market
And there’s still a lot of money that could come into the market from here.
At the beginning of 2023, many investors – big and small – were sitting in cash due to the high level of economic uncertainty. Plenty of this money remains on the sidelines (in late May, there was about $6trn sitting in US money market funds).
Now that stocks are rising, some of this capital may find its way into the market, driving share prices higher.
Good odds
Finally, history shows that there’s a good chance the rally will continue.
Research from Tom Lee at Fundstrat shows that on the 22 occasions since 1950 when the S&P 500 index has finished the first half of the year up more than 10%, the median return for the second half was 8%, with a 82% win/loss ratio.
I like those stats.
I could be wrong
Of course, the stock market is notoriously unpredictable in the short term. And there are plenty of things that could result in a downturn in the second half of 2023.
These include:
- Weaker-than-expected earnings
- Higher-than-expected inflation and/or interest rate increases
- A major downturn in the economy and/or consumer spending
- A ‘black swan’ event
I’m optimistic though. I’m betting that shares are going to continue rising.
