This article covers 5 stock market predictions next 6 months. To read the detailed description of the market outlook, go directly to 10 Stock Market Forecasts Next 6 Months.
5. Australian Stocks will Outperform
Australian stocks also suffered the same fate in 20222, coming under immense pressure as the Reserve Bank of Australia embarked on an aggressive monetary policy tightening. The overall equity market was down by about 5%. However, there was a change of fortunes in the first half of the year with tech and AI stocks spearheading recovery in the overall market.
Nevertheless, investors remain extremely cautious in the year’s second half amid the lag effect of rate hikes in 2022. Inflation remains a serious concern as it has contributed to the RBA raising interest rates to above the 4% threshold resulting in more expensive borrowing conditions for businesses and consumers.
Heading into yearend, there could be more pressure on Australian equities on more interest rate hikes that could lead to slower economic growth and reduced corporate profits. According to Matthew Haupt of the WAM Leaders fund, the short-term outlook does not look good for Australian equities.
Nevertheless, Australian stocks are expected to outperform starting in 2024 on the prospect of the RBA instituting rate cuts.
“We do expect some economic weakness in the very short term over the back half of this year and some potential tightening in federal rates. Ultimate that is negative short term for equities. Ultimately 2024 is looking very good the environment for equities,” said Mr. Haupt in an interview with CNBC.
4. Two More Interest Hikes After July
July was expected to be the last time the FED would hike interest rates as part of the monetary policy tightening spree. Nevertheless, with the US economy steadying and remaining resilient, two more interest rate hikes are predicted over the next six months.
According to former Federal Reserve Vice Chairman Roger Ferguson, inflation remaining high and failing to edge below the 2% level could force the FED into further hikes. Two more hikes could come into play on the strong economy, as already depicted by a solid jobs market and impressive retail sales and manufacturing data.
“It is far from over that they are getting inflation definitely down to that 2% number and I think part of the problem is inflation might still be stuck a little higher than 2% forcing may be to do not one more after July but possibly two if that is what the data calls for,” said Ferguson.
3. US Economy Headed for Recession
The US economy has remained resilient for the better part of the year, with solid economic reports depicted by substantial job numbers, retail sales growth, and waning inflationary pressures. Nevertheless, tightening credit conditions with aggressive interest rate hikes could catalyze the economy into recession in the next six months.
According to Jonathan Liang of JPMorgan Asset Management, tightening credit conditions and the fading of COVID-19 stimulus packages are putting pressure on many households.
“We think the primary driving force of that is going to be tightening credit conditions as bank balance sets particularly among US regional banks remains somehow flawed and so have to be repaired in order to get bank lending back going,” said Mr Liang in an interview with CNBC
Jason Trennert, Strategas Research Partners chairman and CEO, believes the market is yet to price in the prospect of the economy tipping into recession. Consequently, better times to absorb risk in the equity markets will exist.
Nicola Mai, portfolio manager and sovereign credit analyst, believes there is a big chance of the US and global economy ending up in a mild recession at the turn of the new year.
2. Oil Prices will Hike, and Oil Companies will Outperform
Oil prices are expected to power through the $ 80-a-barrel level in the year’s second half. After a recent slide lower, the increase comes on price struggling to find support below the $70 a barrel level. According to analysts at Goldman Sachs, one of the factors expected to push prices higher is reduced production in the US.
The analysts at Goldman Sachs expect deficits of almost 2 million barrels per day in the third quarter. With demand reaching an all-time high, prices are expected to rise amid low supply. Demand from major importing nations is expected to support higher prices. Chin and Indian oil demand is expected to rise by 2 million barrels a day in the second half.
Goldman Sachs expects oil prices to end the year at highs of $86 a barrel level as rig count continues to drop and hit the lowest level since March of last year.
Saudi Arabia, one of the major oil producers cutting supply in the oil market, should also put pressure on oil prices amid high demand, consequently pushing prices higher. According to Giovanni Staunovo of UBS Global Wealth Management, Russian oil exports falling considerably should also fuel higher oil prices.
“Russian exports falling considerably. So, we have a massive amount of oil being removed from the market, which is tightening up fundamentals and pushing up prices. We expected a further increase to between $85 and $90 over the coming months,” stated Staunovo on CNBC.
1. Low Market Cap Stocks will Outperform
With the US economy remaining resilient more than ever, it might be time to look closely at small-cap stocks benefiting from secular market grinds. Beaten-down stocks of smaller companies are increasingly making a comeback by offering an opportunity to gain exposure to the equity market rally at highly discounted levels.
The S&P 500 small-cap index is already up by more than 8% from its May low, affirming growing interest in small-cap companies with tremendous growth potential. Unlike in the first half of the year, where large-cap stocks remained the key drivers of the overall market, small caps are helping prop the burgeoning bull market.
According to Chris Marangi, Co-CIO of Value at Gabelli Funds, investing in US small-cap companies is still possible instead of seeking value in emerging markets.
“If the economy is going to have a soft landing, the cyclical companies that have been beaten up recently are going to do better. Irrespective of what happens with inflation and rates, we will find good companies run by good management and attractive valuation; you will find those in the small-cap area,” Marangi said in an interview with CNBC.
Some of the small companies doing well include Apellis Pharmaceuticals, Inc. (NASDAQ:APLS), up 69.1% for the year; Rambus Inc. (NASDAQ:RMBS), up 64.9%; Shockwave Medical, Inc. (NASDAQ:SWAV), up 44.1% and Saia, Inc. (NASDAQ:SAIA), added 48.8%.
As long as Wall Street remains optimistic about the economy’s health, small-cap stocks will likely outperform the overall market.
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