Next big stock market rally needs three things. Yesterday it got two of them

The last 18 months have been tough for investors, as war in Ukraine, rampaging inflation, soaring interest rates and Chinese Covid lockdowns smashed markets.

In 2022, the all-conquering S&P 500 US stock index suffered its worst year since 2008, falling 20 percent.

New York’s tech-heavy Nasdaq Composite fell by a third. Shares in tech titans such as Facebook-owner Meta Platforms and electric car maker Tesla plummeted.

The FTSE 100 was a relative success, ending the year roughly where it began.

2023 has also been bumpy, with the banking meltdown destroying confidence, swiftly followed by the US debt ceiling crisis.

Markets have been nervously watching political rows between the Democrats and Republicans over the colossal amount of debt the US has run up.

It was on course to breach its $31.4trillion (£25tn) debt ceiling on Monday, which would have triggered financial chaos as the world’s biggest US economy reneged on its debts.

Then on Friday investors woke to discover the Senate approved a bill to raise the country’s debt ceiling.

Panic over.

The FTSE 100 flew, as did stock markets across Asia and Europe, adding billions to global share values and driving up the nation’s pension and stocks and shares Isa values.

The afternoon brought more good news with figures showing the US economy added 339,000 jobs in May, far outstripping the expected 190,000 increase.

Wall Street shot up on the double boost and the S&P 500 ended Friday trading 1.45 percent higher at 4,282.37.

It has now rebounded almost 12 percent this year. The Nasdaq has done even better, rising 27.47 percent.

It has been boosted by chip giant Nvidia, which is expected to benefit from the artificial intelligence (AI) revolution. The stock has skyrocketed a staggering 174.73 percent in 2023 to become a $1trillion company.

Meta is up 118.54 percent year-to-date, while Tesla has accelerated 97.94 percent.

Investors are waking up to the fact that there’s still plenty of money to be made.

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While two problems came good yesterday, investors are waiting for a third and final trigger before the stock market rally begins in earnest.

They’re now desperate to see inflation defeated which will allow central bankers slash interest rates, said Richard Hunter, head of markets at Interactive Investor.

There’s good news here, too. “Recent comments from Fed members have lifted sentiment, suggesting it may be time to pause the rate hiking cycle.”

The Bank of England is still expected to hike UK base rates from 4.5 percent to 4.75 percent on June 22. It needs to curb UK inflation which stood at 8.7 percent in April. In the US, it’s already fallen to 4.9 percent.

When the Fed signals it’s ready to cut interest rates, the next stock market rally will begin.

That day is getting closer. Get ready for it.