5 reasons Fools are still bullish on the stock market despite recent volatility

Five years ago, the FTSE 100 hovered around the 7,600 level. Today, it’s… well, around the same! But look at the chart, and the Footsie resembles more of a roller-coaster that we investors have ridden over the past half-decade. However, we know that — historically — stock markets go up. Armed with that knowledge, below are a host of additional reasons some of our Foolish contributors remain enthusiastic about investing in British shares!

Being greedy when others are fearful

By Dr James Fox. Market volatility has been a theme of 2023. Amid competing narratives, it can be hard to have conviction. But we’ve also had to navigate concerns around the health of the US banking system, a possible US default and the impact of rising interest rates, among other things. Despite this, I remain bullish. That’s because I’m looking at long-term trends rather than the short-term challenges we’re seeing at the moment. But at the same time, these short-term challenges combined with broader concerns about our post-Brexit future have created interesting buying opportunities. Right now, we’re in a dip – admittedly one that’s lasted for a long time, but one won’t continue forever. We can observe that the FTSE 250 is still trading below pre-pandemic levels and is down 9% over five years. Meanwhile, the FTSE 100 is pretty much flat over the period. But the long-term trajectory tends to be upwards. The blue-chip index is seven times larger today than it was 39 years ago. Of course, historical performance is not indicative of future performance, but I’m confident the index will grow. Interestingly, earnings haven’t been disappointing, but we’ll need to see downward pressure on inflation, and a positive long-term forecast for economic growth before stocks push upwards. That may take time, but I’m investing before the bull run.

Positive sentiment as interest rate hikes finish

By Jon Smith. A key factor that should help the stock market later this year is interest rates peaking. The 12 consecutive hikes in a relatively short space of time has put pressure on all parts of the economy. This ranges from companies finding that new debt is expensive, to households under pressure from rising mortgage costs. At 4.5%, I do feel that there are a couple of further hikes coming in the early summer to hit 5%. Yet beyond this, I feel we’ll have reached peak interest rates. When this is signalled, I feel it’ll be bullish for the stock market. It’ll provide some much-needed certainty for both businesses and consumers. It also provides a sense of finality about the rate hiking cycle, which should see investors that were sitting on their hands — waiting to make investment decisions — start to buy shares again. Certain sectors are likely to outperform in this environment. For example, property-related stocks could jump, as mortgage costs should stabilise. As long as no immediate rate cuts are signalled, banking stocks should also do well. The higher rates have provided a large benefit to net interest income for the banks, boosting profits.

Short-term pain, long-term gain

By Roland Head. A recent report from Credit Suisse showed the UK stock market has delivered an average return of 9.1% per year since 1900. That’s double the 5.1% annual return from bonds over the same period. The numbers for the US market were almost identical — 9.5% and 4.7%. The kind of stock market volatility we’ve seen this year can be uncomfortable. But I see it as the price investors must pay to benefit from the higher long-term return potential of shares. This year’s market movements have created some terrific buying opportunities, in my view. Valuations on many of the shares I’m interested in are coming down to more attractive levels than I’ve seen for a while. I know that the short-term outlook is uncertain, and we could see further falls. But I’ve been adding to my portfolio this year and I expect to continue doing so through the summer. If I can pick up shares in good quality businesses today at attractive prices, I’m confident my investments will perform well for me over the years to come. In my experience, buying shares in weak markets improves my chances of beating the market over longer periods. That’s why I’m bullish on stocks right now. Roland Head has no position in any share mentioned.

Adopting a long-term outlook

By Charlie Keough. It’s no secret that in recent times the stock market has been volatile. We’ve hopped from crisis to crisis in the past few years. And as a result, investors may not have been seeing the returns they hoped for. However, I’m still bullish. As a Fool, I view all my investments over a long-term timeframe, as this method has a proven track record of solid results. Let’s take the S&P 500 as an example. While 2022 saw the index fall 18%, across the last five years, it’s up by over 50%. Over the last decade, it’s risen around an impressive 160%. This highlights how, over a longer timeframe, short-term volatility is nullified. And therefore, the recent instability we’ve experienced is merely a small bump in the road to hopefully healthy returns. With this in mind, some of the deflated stock prices seen in recent times also present an opportunity to buy companies for a slashed price and hold them for the years ahead. Pinching a piece of advice from famous investor Warren Buffett, he says to be greedy when others are fearful. Essentially, this means that the fall we’ve seen opens a gap for me to add high-value businesses to my portfolio for cheap. Buffett adopted this method in the 2008 financial crisis, and it seems to have worked rather well for him.

Inflationary headwinds could soon be a distant memory

By Charlie Carman. Investors sometimes make the mistake of fighting the last war. Currently, gloomy stories about inflation dominate the news. However, there are reasons for cautious optimism in light of advancing disinflationary forces. Many economists believe it takes up to 18 months before the effects of monetary policy changes are felt. Central banks have raised interest rates at an extraordinary pace over the past year. Further hikes seem likely in the near term. We’ll soon discover whether this delivers much-needed improvements in inflation, which has weighed on the stock market’s recent performance. Indeed, inflationary episodes have sometimes been short-lived affairs historically. High inflation rates aren’t ubiquitous, either. China’s headline CPI rate has plummeted to 0.2% and could soon turn negative. Conditions are ripe for a weaker yuan if China seeks to export its way out of trouble by lowering the value of its heavily managed currency. A flood of cheaper goods from the world’s workshop might reduce inflation quicker than expected in Britain and elsewhere. Granted, a deflationary spiral would raise recession risks. However, interest rates could be cut further in 2024 than investors currently anticipate. Debt would become cheaper and bonds less attractive, paving the way for a stock market rally.