These 5 factors will decide if stock markets will make you rich in 2018

The lights are flashing green which suggests stock markets could make us even richer this year, says Harvey Jones.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Will be stock market make you rich this year? Nobody knows for sure, but a number of key indicators could give you a fairly good idea.

Interest rates, wages, inflation and the value of the pound will all affect UK markets this year, but online platform AJ Bell has produced five lesser-known signals that may also indicate whether share prices will continue to drive forwards, or come to an abrupt halt. 

All five look encouraging right now, says investment director Russell Mould. “None of them is flashing danger, if anything all are flashing green for go.” 

Transportation indices.

If nothing is being shipped, nothing is being sold. The good news here is that both the FTSE All-Share Industrial Transportation and America’s Dow Jones Transports indices are currently powering higher, offering a ‘green’ light to global stocks. The rising oil price is maybe another positive indicator.

Dr Copper

Copper has a wide range of industrial uses which makes it a great barometer for global economic health. The price hit a six-year low of around $4,470 per metric ton during the January 2016 China sell-off, but has surged back to $7,087, according to Comex. If Dr Copper remains in sound health, markets should continue to show their mettle.

Small-caps

When investors are feeling bullish, they are more willing to take a chance on smaller companies. Market minnows tend to fly in the good times and fall faster during the bad. Blue-chip indices such as the FTSE 100 and Dow Jones Industrial are currently grabbing all the headlines, but AJ Bell reports that both the UK’s FTSE Small Cap and America’s Russell 2000 are also making solid progress. If this continues, expect more good news. Keep your eyes peeled.

Market volatility

Volatility can be the investor’s friend, as it gives you the chance to buy shares at a discount and sell them at a premium. However, history shows that share prices do best when making modest, steady gains, rather than swinging up and down. Last year was relatively smooth sailing on the FTSE 100, which posted the lowest level of volatility since 2005, with just 17 open-to-close movements of more than 1% throughout the whole year. As Mould points out, this does not suggest we are in the midst of a frenzied bubble that is simply itching to burst.

Dividend yields

Company management teams are reluctant to cut shareholder payouts, as this dents investor confidence and hammers the share price. Investors should therefore keep alert for signs of dividend stress but currently the outlook seems healthy, with the FTSE All-Share yielding 3.6%, against just 1.31% on a 10-year gilt, a premium of 230 basis points. The index has only topped 200 bps twice in the last decade, and on both occasions it promptly made healthy gains. The FTSE 100 has an even higher yield.

Naturally, a black swan event could smash all these indicators to pieces. However, these market signals may help you look beyond the current doom-mongering about an impending market crash.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Google office headquarters
Investing Articles

1 reason I like buying S&P 500 shares – and 1 reason I don’t

Will this investor try to improve his potential returns by focusing more on S&P 500 shares instead of British ones?…

Read more »

Young woman holding up three fingers
Investing Articles

3 SIPP mistakes to avoid

Our writer explains a trio of potentially costly errors he tries to avoid making when investing his SIPP, on an…

Read more »

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

Here’s how (and why) I’d start buying shares with £25 a week

Our writer uses his investment experience and current approach to explain how he would start buying shares on a limited…

Read more »

Aerial shot showing an aircraft shadow flying over an idyllic beach
Investing Articles

Here’s my 5-step approach to earning passive income of £500 a month

Christopher Ruane explains the handful of steps he uses to target hundreds of pounds in passive income each month.

Read more »

Investing Articles

2 UK shares I’ve been buying this week

From a value perspective, UK shares look attractive. But two in particular have been attracting Stephen Wright’s attention over the…

Read more »

Investing Articles

A lifelong second income for just £10 a week? Here’s how!

With a simple, structured approach to buying blue-chip dividend shares at attractive prices, our writer's building a second income for…

Read more »

Investing Articles

Here’s how I’d use a £20k Stocks and Shares ISA to help build generational wealth

Discover how our writer would aim to turn a £20k Stocks and Shares ISA into a sizeable nest egg by…

Read more »