Why this new stock market bull phase has legs

view original post

Has the stock market bottomed? Nobody knows. But I do know the nadir of a bear market is only ever obvious in the rear-view mirror.

And one of the biggest reasons to be cheerful, for me, is the recent easing of some commodity prices. I’m talking about oil, gold, silver, platinum, copper, aluminium, iron ore, wheat, lumber, crude palm oil, oats and others. 

Lower costs of raw materials will likely feed into finished goods and services after a delay. And that suggests lower inflation ahead. So I think the cost-of-living crisis looks set to ease. And that’s good for consumer-facing businesses.

Strong trading for many businesses

Meanwhile, bombed-out consumer stocks have been moving back up. But there’s a good reason to be bullish about businesses. Many have been posting robust trading updates recently. And one high-profile example is the fast-moving consumer goods giant Unilever. The company reported underlying sales growth of just over 8% this week and said strong pricing helped it mitigate input cost inflation. 

I reckon that’s an example of the resilience of many enterprises. Inflation can cause temporary problems. However, lots of businesses have the ability, like Unilever, to raise their selling prices to compensate. Overall, I think strong trading is why this new stock market bull-phase has legs.

So I’ve been buying stocks like mad with the aim of holding them for the long term. I can’t guarantee that they won’t go lower. But it’s a good idea to follow the news flowing from companies of interest. And it’s wise to avoid putting too much weight on the general news headlines.

The predictive stock market

There’s a sound theory behind such an approach because general news is reactive and the stock market is predictive. Stocks are likely moving higher in anticipation of better times ahead. But the general news is just reporting stuff that has already happened.

I trust the stock market more than I trust general news. And for me, it’s shouting ‘buy’! So I have been. Lower stock prices have made valuations look compelling, in many cases. And I reckon lots of companies have a bright future.

For example, I bought a few shares of UK lifestyle and fashion retailer Joules. On 19 July, the company said profit before tax and adjusting items will likely come in slightly ahead of previous expectations. And that’s for the trading year to May. The directors said that outcome is due to “additional cost reductions”.  

City analysts expect earnings to grow by around 27% in the current trading year, although there’s no guarantee attached to that forecast. And one risk with this business is it carries a lot of debt.

Greggs is everywhere!

I carried on with the retail theme by investing in food-on-the-go retailer Greggs. The company’s expansion programme has been impressive over many years. And I like the way the business targets new markets — these days, we can find a branch of Greggs almost anywhere. However, City analysts predict lacklustre single-digit percentage growth in earnings ahead.

Nevertheless in May, the company said it made a good start to 2022. And there is a “strong” pipeline of new shop openings ahead. We can find out more about current trading with the half-year results report due on 2 August.