The stock market has been incredibly volatile over the past few years. Issues like the pandemic and the war in Ukraine mean that predicting how share prices are going to move is extremely difficult. Nevertheless, I’ve got three predictions for the stock market for next month. Let’s take a closer look.
Possible interest rate hike?
Interest rates have been rising consistently this year and currently sit at 1.25% in the UK. The Bank of England has embarked on a number of rate hikes in a bid to curb rampant inflation, which is hovering at around 10%.
Recently, the Governor of the Bank of England, Andrew Bailey, stated that he couldn’t rule out further increases. This could be as much as 0.5%. With the next interest rate meeting scheduled for 4 August, I think we could potentially see a new rate of 1.75%.
Interest rates are important for bank stocks, like Lloyds and HSBC, because they largely dictate how much these companies can charge customers who want to borrow money.
If interest rates do indeed rise, I think these bank stocks could benefit and their share prices may rise.
Recession on the cards?
Second, figures for gross domestic product (GDP) for the three months to 30 June are due for release on 28 July in the US. GDP is defined by the International Monetary Fund (IMF) as “the monetary value of final goods and services—that are bought by the final user—produced in a country in a given period of time (say a quarter or a year).”
This number contracted last quarter and many analysts believe the results in July will show further contraction. Two consecutive quarters of contraction means that a recession is in progress. While these are US figures, the impact will probably filter through to global markets.
One of the major commodities that has historically suffered during recessions is oil. A slowdown in the economy seemingly coincides with reduced energy demand.
This could mean oil firms such as BP and Shell will see their share prices fall. However, oil supply remains tight and the oil price (and therefore the value of BP and Shell’s produce) could still rise in the long run.
Recovering international travel?
Finally, a number of travel firms could be due to release results for the three months to 30 June, including International Consolidated Airlines Group and easyJet. These companies have been battered in recent times, given that virtually all flights were grounded during the pandemic.
While there have been a number of cancellations this summer due to staff shortages, most airlines are forecasting an increase to between 80% and 90% of 2019 passenger capacity. With summer bookings also high, I think the results could be quite positive.
While airline stocks aren’t out of the woods yet, given rising jet fuel prices, these results releases could be the first indication that things are getting better.
So what will I do now? Well, I’m thinking long term. I’ll delay adding the likes of BP or Shell to my portfolio until I understand how a possible recession has impacted oil. However, I’ll add Lloyds and HSBC, together with easyJet as I see them as solid, long-term holdings. I’ll also increase my current holding in International Consolidated Airlines Group.
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Andrew Woods owns shares in International Consolidated Airlines Group. The Motley Fool UK has recommended HSBC Holdings and Lloyds Banking Group. 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.