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A sustained rally for UK stocks is likely coming and here’s how I’d play it

Black woman using loudspeaker to be heard
Black woman using loudspeaker to be heard

There’s a growing chorus of voices predicting a further rally for US stocks in November and beyond. And wherever the US market goes, UK stocks often follow.

Bullish commentators over the past few days include CNBC’s Jim Cramer, analysts at JP Morgan, and analysts at Bank of America. But there are still some bearish voices out there too, such as BlackRock‘s chief investment strategist.

October was positive

To put things in context, we’ve already seen a strong rally for US stocks during October. The Dow Jones Industrial Average gained almost 14% to score its best month since 1976. And the S&P 500 increased by around 8% in October.

Here in the UK, the FTSE 100 delivered an increase of around 3% last month and the FTSE 250 mid-cap index rose by just over 4%. But many individual UK stocks have done even better than that. However, not all of them have risen.

Jim Cramer thinks that technical charts are indicating there is further potential for increases this year.  However, I’d be the first to admit that relying on charts as a guide is perhaps not the best way to proceed. A better approach for me is to analyze the fundamentals and valuations of businesses.

Nevertheless, Cramer has been following renowned US technical analyst Larry Williams. And Williams apparently used charts to predict the rally in October. According to Cramer, Williams reckons the market is likely to deliver more upside through to the end of the year.

Bulls be prepared, bears beware,” said Cramer on his popular TV show. And I can see that the period heading into Christmas and the New Year has often produced bullish sentiment among investors in previous years.

Inflation and interest rates

Meanwhile, most of the optimistic commentators have been focusing on an expectation that inflation will ease soon, causing central banks to back-off from aggressive raising of interest rates. And investors have more money in cash than at any time over the past couple of decades, apparently. So, the theory goes, improving general economic conditions could cause a flood of money back into stocks and shares thus prompting a sustained rally.

Bearish voices have been saying things like the markets have already gone too far too fast. And the reality of a global recession will likely take stocks and shares lower.

However, none of these opinions should make any difference to my investment programme in shares. I’m concentrating on the prospects, valuations, and quality of the businesses underlying the shares that interest me. If those things add up to an attractive long-term investment opportunity, I’m pulling the trigger and buying. And that’s regardless of whether the general stock market moves up, down, or sideways.

Meanwhile, today’s weaker stock market offers an opportunity if I focus on the long term. After all, billionaire investor Warren Buffett once said, “Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down”.

The post A sustained rally for UK stocks is likely coming and here’s how I’d play it appeared first on The Motley Fool UK.

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Bank of America is an advertising partner of The Ascent, a Motley Fool company. Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

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