Will the Stock Market Rocket in November?
Typically, historically, markets rise after stock prices drop. And October is normally that month where markets hit bottom. Last week though saw a number of very positive signs that could help markets stave off bearish sentiments.
But with Covid out of the way, aren’t markets ready to open fully and recover lost ground? There’s a good case to be made for the markets to break for the upside into November and on into winter, perhaps after the next government crisis is resolved.
Last week’s big rally is exciting a few analysts and investors, but we don’t know yet if the enthusiasm will flee with winter’s incoming cold, especially as energy prices rocket upward.
There is credence to the prediction of stock market improvement, if investors have fully shed their negativity. The government debt crisis coming in early December is the one factor that looms big, because the Democrats haven’t come up with a sure fire plan to deal with it. That’s a problem at a time when they need to spend $3.5 Trillion more to keep their ideology alive.
Inflation is a headwind for sure, and the rising price of oil has many investors thinking the worst. Consumer sentiment is down the last few months. Will the US government back down on their idealistic policies? Perhaps that would bring immense optimism and carry the markets onto new highs?
Do you think the Democrats policies are the key negative factor going forward?
The Case for the Bulls
Fundstrat’s Tom Lee still believes the big rally is coming. I guess the question is whether the big correction will happen and when this updraft will begin. 2021 wasn’t all that bad given the circumstances so perhaps that is a key factors as more Americans go back to school and life resumes?
Jim Cramer of CNBC discusses Larry Williams charts where Williams suggests the market is ready for another bull run upward. I don’t see reason to doubt stock markets will do well beginning in November. However, are we over the negativity once and for all, now that Covid is releasing its grip on us? Will the US government keep making mistakes?
What are the Factors Coloring the Recovery?
What colors the 3 month and 6 month predictions of the markets? It has to be the government debt ceiling limit in December. Other than that, we have to believe the US and Global reopening trade will lift all markets. Inflation will retard profits for companies who won’t be able to pass on those rising costs fast enough. They’ll just see sales lag somewhat until next spring.
Last month’s jobs report was not stellar and withdrawal of pandemic aid has caused the IMF to warn that a correction may now happen.
Given how much wealth is in the hands of billionaires and average investors, investor sentiment is a huge factor in the stock market forecast.
Last year at this time, optimism reigned and market valuations climbed. This year, as the graphic below shows, investors are much more fearful. The presence of Covid doesn’t seem to be a factor now at all.
What About the Long Term 5 and 10 Year Forecast?
The 5 year forecast and 10 year forecast are for much lower growth but still expansionary. The big questions then are about trade policy, trade deficits, technology, and government policy on energy and land development.
So far the government has favored land development restrictions which is crushing the housing market and driving home prices sky high. And the government is crushing energy production and escalating home heating and vehicle gasoline prices. The obsession with climate change which has not hit Asian societies, will be a big downer for the markets. It will suppress the global economy going forward as energy prices will be too high.
More of the world’s wealth will flow to Saudi Arabia and Russia, and tariffs will have to remain on imports to protect domestic market stability. With the US boosting its own manufacturing and GDP, the economic picture brightens.
Next spring, fully out of the pandemic shutdown, with stimulus to get things going, the US economy (and other economies) should be able to move forward. GDP growth numbers seem to be revised downward, however a lot of recovery production is being shifted into 2022.
There are worries about stagflation but if interest rates are kept low, the global recovery should resume in 2022. Optimistically speaking, there are still some buying opportunities and some stocks will produce good dividends.
The question remains about whether real estate is still a much better investment. The demand for housing including rental housing is very high and prices will ensure more housing will be built.