Will the Markets Head Higher or Lower in November?

One of the most volatile months in the history of the stock market is now over. October of 2008 will go down in history as one of the worst months ever for not only the US stock market, but the global markets as well. The major stock market indexes across the globe are all in shambles right now, trying to recover from one of the worst drubbings in modern history. Many emerging economies, crippled by decreased exports and weakened currencies, are currently hanging on for dear life. The world has changed dramatically over the past month. We've been inundated with talk of bailouts, capital infusions and emergency loans.

The big question now is: where will the markets go from here?

Obviously there is no way to accurately predict what will happen. The stock market has made fools of people who have tried to call a bottom over the past few months.

We can try to identify some things that are LIKELY to happen over the next couple of months though. They are:

1. "Relief" rally if Obama wins the US election. A recent Reuters poll indicated that 56% of those surveyed felt that an Obama victory would be "good" for the stock market. I'm not saying if this is necessarily true or not, however I do feel as though many investors will be emboldened to buy after an Obama victory. Right or wrong, I would expect the stock market to stage a pretty decent rally if Obama wins.

2. Less focus on bailouts and capital infusions and IMF loans, and more focus on company earnings and economic reports. The bailouts and coordinated rate cuts will come to an end, and there will be more of a focus on how companies and the average person are faring through this economic downturn. Investors will be closely watching the impact of the downturn on earnings. Unemployment reports, consumer confidence readings and retail numbers will be the focus of attention over the upcoming months. How has the downturn altered the spending habits of the average consumer? How many jobs are being cut? These pieces of information will determine the market's movements over the next 3-6 months as investors try to determine when the economy will begin to grow once again.

3. Commodities will partially recover. I would expect oil, gold and others to partially recover from their recent drubbing. Oil has been particularly hard-hit due to talk of a global recession (and the end of rampant speculation in oil futures), but I think that oil will stabilize and begin to recover somewhat over the coming months. I see a greater likelihood of oil at $80/barrel than $50/barrel at this point, especially with OPEC actively restraining supply in order to stablilize prices.

We'll see what happens over the next few months. One thing is for sure - there won't be too many dull moments.

Filed under: General Market News | Stock Market Education