The mood changed quickly in July which turned into a profitable month for investors. We check the history books for clues as to how stock markets might perform this month.
After a grim start to the month, global stock markets ended July in buoyant mood. In the US, both the S&P 500 and Nasdaq tech index trade near a 16-month high, the Japanese Nikkei hasn’t seen current levels in 33 years, and the FTSE 100 is at its best in a couple of months. Germany has just made a record high and Wall Street is racing towards a new best.
Nasdaq’s 4% rally was driven by a near-66% surge at electrical vehicle maker Rivian Automotive (NASDAQ:RIVN) following better-than-expected quarterly vehicle deliveries. Airbnb (NASDAQ:ABNB) jumped almost 19% and PayPal (NASDAQ:PYPL) 13.6%. Of the mega tech stocks, Meta Platforms (NASDAQ:META) swelled 11%, both NVIDIA (NASDAQ:NVDA) and Google owner Alphabet (NASDAQ:GOOGL) added 10%, and Tesla (NASDAQ:TSLA) and Amazon (NASDAQ:AMZN) over 2%.
Hawkish comments from the Federal Reserve had triggered interest rate concerns in the States, while similar issues dogged UK investors. It got so bad at one point early in the month that the FTSE 100 traded at its lowest since November. But the mood quickly changed following data out of the US.
Positive news on inflation both here and in the US cooled interest rate expectations, with a growing sense that central bankers may not raise borrowing costs to previous giddy heights. Achieve a so-called Goldilocks outcome for economies – not too hot or too cold – and markets could extend gains through the year.
It was an amazing month for UK stocks. Of the 100 blue-chips, 77 ended the month in positive territory. Of the 23 that fell, only 13 lost more than 1%.
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Ocado Group (LSE:OCDO) had a stunning July, rocketing 65% to a 15-month high. Vague bid speculation surrounding the stock has come to nothing so far, but a bounce in the shares was based on earnings which outpaced expectations.
Rolls-Royce (LSE:RR.) leapt 22%, meaning the shares have doubled in value in 2023. Latest rally was triggered by significantly upgraded profit expectations thanks to strong product demand, cost savings and a transformation programme.
Global packaging firms Smurfit Kappa (LSE:SKG), Smith (DS) (LSE:SMDS) and Mondi (LSE:MNDI) jumped between 14% and 18%. Housebuilders did well too. Persimmon (LSE:PSN) built a 13% gain, Taylor Wimpey (LSE:TW.) 11%, and Berkeley Group (LSE:BKG) and Barratt Developments (LSE:BDEV) over 10%.
None of this should come as much of a surprise. As I wrote a month ago, the FTSE All-Share had risen during July in 11 of the past 14 years since the financial crisis in 2008. A winning 2023 makes it 12 out of 15, an 80% success rate.
Outlook for UK stocks in August
Last August, western markets had a terrible time. While Brazil jumped 6%, India 4% and the Japanese Nikkei 1%, the FTSE 250 slumped 5.5%, closely followed by European markets and the Nasdaq and S&P 500, all down 4-5%. The FTSE 100 lost a mere 1.9%.
High inflation and central bank interest rate policy were the big concern a year ago, keeping US growth stocks in the doldrums for months. These issues remain the major talking point in 2023, although the outlook has improved somewhat.
Studying behaviour of the FTSE All-Share index since 2000 might give us a clue as to possible outcomes for the month ahead.
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Over the past 23 years, the index has risen 12 times in August, so little better than 50:50. Gains have typically been only modest, although movements over the past five years have been more pronounced. After dropping 3.5% and 4.4% in 2018 and 2019 respectively, the index rose 1.8% and 2%, before losing 2.4% in August 2022.
According to data from the UK Stock Market Almanac, from 2000 to 2017 the average return for the month was zero, ranking August ninth of all months of the year. It’s fair to say expectations for the year’s big holiday month are pretty low.
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