The volatility observed during September 2021 continued into October. Several experts expressed their concerns about the current situation, caused notably by labor shortages, supply chain disruptions, and of course, rising inflation. Despite all this, the markets remain promising, and investors are optimistic, particularly those with small budgets. What could this possibly mean?
Ongoing Inflation
In recent weeks, there has been nearly generalized inflation. In some countries, like the United States, the prices of basic food products have increased again. The price of gasoline has also risen, up by 20 cents in a month, totaling a $1.20 increase compared to the previous year. These products are just examples, as government indices have reached historical levels.
In China, a record increase in producer prices was observed in September, rising by 10.7% year-on-year. The surge in raw material prices weighs heavily on markets worldwide. Inflation remains the main concern for investors, although the above-mentioned increase does not (yet) impact the market significantly, hence the interest in investing in the stock market on a small budget. Indeed, the consumer price index moderately increased in September, by 0.7% year-on-year, compared to 0.8% in October.
The situation has naturally caused a lot of concern among markets. Some major entities have looked into this trend, expressing their fears. A critical question was then posed: should one still invest in the stock market?
Investors Are Confident
For some market observers, there is no doubt that the increase in stocks has been triggered by the extended period of low interest rates. This would drive investors to abandon low-yield bonds in favor of returns in stocks. In other words, they are moving their investments from fixed income securities to much riskier assets.
However, the persistence of inflation and the upcoming increase in rates proposed by some banks, including the central bank, have led to rising bond yields worldwide. The most significant increases have been observed mainly in emerging markets; bond yields (denominated in US dollars) have jumped by nearly 45 points since the end of August.
According to several experts, investors do not feel the full effects of inflation and rising prices due to a combination of wage increases, high savings rates, and reduced levels of revolving debt. Savings made in the past allow investors to remain relatively unaffected and continue to buy stocks even with small budgets.
The observed market data has been overall very encouraging. Taking the example of the S&P 500, more than a quarter of its reporting companies have publicly announced figures much better than forecasts; 62% of them recorded a positive impact on their stock prices. October is, on the whole, better than September, and growth could reach 33% compared to the 24% expected. We can also mention the Dow Jones index, which has reached record levels in October.
Conclusion
Inflation is indeed real, and it may continue to grow in the coming weeks. Fortunately, it does not significantly affect the stock market. Many experts were worried about this trend, but it was the opposite for investors. The stock market as a whole has continued its upward trajectory. Major stock exchanges such as the S&P 500 and Dow Jones have seen their indices reach record levels. The conclusion is clear: there is no reason not to invest in the stock market, even with a small budget.
