Will the stock market recovery continue?

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The recent rally in the stock market means that stocks are generally more expensive than they were a month ago. So, will the stock market continue to rally or fall?

The truth is, no one knows for sure what the stock market will do in the coming week or month. But I think there are things that give us a clue.

Economic data

The first thing that could indicate the direction of the stock market is economic data. Specifically, the possibility of a recession.

Central banks raised interest rates in an attempt to control inflation. However, as interest rates rise, the possibility of a recession increases as economic activity slows.

In my view, a recession is likely to cause stock prices to fall as earnings expectations decline. So I think a recession is likely to stall a stock market recovery and cause the stock market to fall.

Central banks

I also think central bank policy is important. Currently, the Bank of England and the Federal Reserve have raised interest rates to combat high inflation.

More importantly, central banks have said they are ready to do whatever it takes to bring inflation under control. In other words, they are ready to raise rates quickly and sharply.

If central banks change their outlook, I think stock prices will continue to rise. I don’t think it matters whether it comes from controlling inflation or abandoning central banks.

A change in central bank policy is therefore the second thing I look for when trying to understand the direction of the stock market.

Capitulation

Finally, I consider the amount of money leaving the stock market to be important for the recovery. In particular, I look at the amount of money coming out of the retail investor market.

According Bank of America, the last major stock market declines have been accompanied by large outflows of funds from retail investors. This time, however, investors stayed the course.

If retail investors capitulate, I expect stock prices to fall. Since that hasn’t happened yet, I think there is still a major threat to the stock market rally.

how i invest

I think the next move in the stock market will be the result of a number of factors that are very difficult to predict with any precision. So how to invest?

Without a precise vision of the future evolution of the stock market, I follow the advice of Warren Buffett. Instead of trying to buy stocks at their the lowest price, I aim to buy stocks at prices that are Quite low.

Right now I’m watching Diploma and The London Stock Exchange Group United Kingdom. In the United States, I buy Metaplatforms and disney.

I think the cash these companies will generate is attractive compared to the price I have to pay for them today. As such, I’m happy to buy the stock regardless of how the stock market moves next.

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