Will the stock market crash, fall, rise or rally? 4 things to keep an eye on

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Investors may have hoped 2022 would deliver a post-pandemic boom for the stock market. However, the year has so far been a roller coaster for shares, with prices often rising one day and then falling the next. 

So, what events are causing this volatility? And can we expect the stock market to crash, fall, rise or rally in the future? Let’s explore.

How have major stock market indexes performed in 2022?

In the UK, all major share indexes are down since the year began. The FTSE 100 is down 2.9%, the FTSE 250 is down 12.3% and the All-Share Index is 4.7% lower than it was in January.

Meanwhile, things aren’t looking any rosier in other parts of the world. Germany’s DAX 40 is 10.1% lower compared to its value when the year began. In France, the CAC 40 index is down 8.7% over the same period, and the American S&P 500 has lost 9.15% of its value.

How will the stock market perform in future?

It’s fair to say that 2022 is turning out to be a very unusual year with a number of unique events unfolding around the world. With this in mind, the outcome of these events, positive or negative, is likely to have a big impact on share prices as the year progresses. 

So, from the war in Eastern Europe to the latest jobs data, let’s take a closer look at the factors that are likely to have a big influence on your portfolio in the coming months.

1. The ongoing war in Ukraine

Russia’s invasion of Ukraine sent stocks tumbling in late February. While the war continues, there is increasing speculation that a peace deal may be agreed sooner rather than later

If Russian tanks do withdraw from Ukraine, it’s entirely possible that stocks will rally. For more on this, take a look at our article that explores the stocks that could soar if Russia and Ukraine agree a peace deal.

Of course, if no deal is struck, then stocks will almost certainly plummet further. In other words, investor fears surrounding the conflict are likely to correlate with the extent of any share price falls. 

2. How the world emerges from Covid-19

Due to the war in Ukraine understandably hogging the headlines in recent weeks, you’d be forgiven for thinking that the Covid-19 pandemic is old news. Yet cases in the UK remain very high right now. Over 76,000 new cases were reported on Wednesday 16 March alone.

So, while the government is pressing ahead with its ‘living with Covid’ plan – with all travel rules due to be scrapped on Friday – the pandemic is clearly still impacting society. With this in mind, investors may wish to keep a close eye on case numbers and keep in mind the risk of new variants emerging.

While lockdowns are often the last resort, there are fears that if the number of cases accelerates, then this could overwhelm the NHS, which could lead to the UK economy shitting down again. If this happens again, then expect stock prices to fall.

However, if the world demonstrates that it is finally ready to live with Covid, and cases begin to fall on a global scale, then it’s entirely possible this could push stocks towards a new bull market.  

3. The future inflation rate

Inflation, both in the UK and around the world, is running high right now. Some may wish to blame the UK’s soaring inflation rate on stimulus schemes that were implemented during the pandemic. For example, the government borrowed £70 billion to finance its furlough programme. 

Whatever your opinion on this, now that such schemes have ended, plus the announcement that the Bank of England is cutting back on its quantitative easing programme, there’s every chance that inflation could fall in future. If this happens, then we can expect stocks to head upwards. One of the benefits of a lower inflation rate is the fact that it can give businesses the confidence to expand.

On the flip side, if inflation continues to soar, then this will add to the economic uncertainty. In such circumstances, stocks are likely to fall. Importantly, if inflation becomes uncontrollable, then a stock market crash can’t be ruled out either.

4. Jobs data

On Tuesday 15 March, the ONS released its latest Labour Market Overview report. It revealed that the UK employment rate rose by 0.1% from November 2021 to January 2022. Following the release of the report, markets soared, suggesting the figures were better than expected.

The ONS releases its next report on 12 April. Should it paint a similar picture, then it’s likely stocks will rise. However, a fall in employment could have the opposite impact. 

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