2023 has been a mixed year for the stock market. Some stocks – notably big tech and anything to do with AI – have performed well, but others have struggled since the start of the year.
Nonetheless, I think there’s a decent chance that the stock market could finish the year strongly. And so I’m looking to buy shares today to avoid missing out on a potential big move upwards.
Has 2023 been a good year for stocks?
Since the start of 2023, the FTSE 100 (-0.5%) and the FTSE 250 (-2.5%) have fallen. But US stocks have been going up, with the S&P 500 (+19%) posting a significant gain for the year.
With a closer look, it’s not that hard to see why. The US stock market’s returns are mostly due to a few of its largest companies, including Nvidia (+218%) and Meta Platforms (+165%).
Nothing on this side of the Atlantic has been faring so well. But that’s because neither the FTSE 100 nor the FTSE 250 has anything similar to the big US tech companies.
Outside of these, returns from US equities have been much less impressive – more closely resembling returns from UK stocks. But that might be starting to change.
Economic conditions
Both UK and US stocks have been contending with high inflation and rising interest rates. But both of these factors have been subsiding lately.
In the UK, inflation has fallen from 10.1% to 4.6% and in the US it has fallen from 6.4% to 3.2%. As a result, the Bank of England and the Federal Reserve have stopped increasing interest rates.
This has been positive for stocks that had been struggling this year. In the UK, brick manufacturer Ibstock saw its shares fall by 23%, before rallying 9% as the macroeconomic data improved.
Over in the US, a similar pattern emerged. Shares in Goldman Sachs fell by 16%, before an 18% recovery brought the stock close to its January levels.
Can the rally continue?
The last few weeks have been encouraging for stocks that have underperformed this year. And I think there’s scope for this to continue until the end of the year.
In both London and Washington, DC, central banks have strongly indicated that interest rates will remain where they are until the end of the year. That leaves inflation as the major unknown.
Both the UK and the US are set to provide one final update before the end of the year. The US reports on 12 December and the UK’s data is due on 20 December.
If the inflation news is positive, I expect the stocks that have bounced off their recent lows to continue to do well. And I think this could take the stock market as a whole higher by the end of the month.
Is now a good time to buy stocks?
A stock market rally isn’t guaranteed from here by any means. There are a number of factors – like the ongoing conflicts in Ukraine and Gaza – that might cause inflation to come in surprisingly high.
If that happens, the momentum behind the stocks that have been recovering might stall. But in a number of cases, lower prices just look like better buying opportunities to me.
