The FTSE may not have reached its 2000 peak, but it has
produced a pretty solid performance over the last year and particularly in the
last 3 months. Why is this? Looking at the evidence it seems to be all about
the liquidity. Whatever can be said about government and bank policy on the
country as a whole, all the signs are that the stock market is benefitting- a
lot.
Indeed as 2013 begins the salient feature is that the global
economic conditions , however bad, are actually benefitting this market at the
moment in very powerful ways. That is not too say that there are still not some
challenges, there are. The market still fears hitting those 2000 peaks again
and pulls back when it senses too much momentum.
2013
Although there are some short term shifts in the next 2 months
we can mostly expect more of the same. February shows some evidence of volatility and over exuberance, and March,
albeit a little calmer of the market reaching new highs.
April therefore is more mixed. There are some doubts about
the sustainability of the valuations and
a feeling that too much emphasis is being put on this index.
May is therefore all talk about what will happen next and
trade but no direction.
With June comes the beginning of a flatter phase. While
there is still enthusiasm it is tempered with caution. There may be a
significant volume of trade though.
July and August also show a surprising amount of activity
for summer months, though there is still a tendency to question the validity of
valuations given the longer term economic background, the short term position
is better than expected and the market reflects this.
The conditions that dominated earlier in the year continue in September and October, and there is
probably a lot of froth in the valuations at this time. There is no sign of any
major falls though.
So by December the market still retains much of its 12 month
momentum and begins 2014 in a positive frame of mind.
2014
The start of 2014 is of a similar mood to the end of 2013
There is even a sense
by February that the valuations are sustainable. However there are still
residual doubts that undermine any tendency to go higher.
The mood changes by May, however. Although we should not
expect major changes in the market valuation, things get much quieter at this
time. Trading volumes are spasmodic and there is a feeling of caution again and
a sense that there are some inherent weaknesses in the economic background to
the market that need to be addressed.
The background conditions remain the same throughout and the
market seems to be trading within limited ranges. Some index constituents may
be having difficulties although most retain their strength.
The year therefore ends slightly shakily. Although there is
less volatility, there is also a sense that valuations are unsustainable after
all and they begin to be undermined.
2015
There is not much new action to report in the first two
months, it seems like there is a holding pattern as the market looks for new
direction. The only during this time excitement is the risk of technological
glitches
March, however starts to see a significant change of
sentiment. There seem to be merger talks in progress ( although whether this
relates to index components of the market itself is unclear). There are still
no big falls in value though, just less evidence of increases.
By May the new mood is becoming entrenched and carries on
throughout June and July. Although there are changes within the market, there
is little price direction.
These changes continue throughout the summer, with a series
of announcements and no real direction as market participants try to work out
which components will benefit from the changed environment and which will not.
The surprises continue in October, and again the questions
over weaknesses in longer term fundamentals. Perhaps debts are a challenge –
more likely it is the lack of potential for real growth that is the worry.
There are likely to be some big swings in value as a result and a key turning
point is reached by November when overall weakness emerges.
A large amount of trade in December accompanies a major shift in the index which
is likely to be in the spotlight at this time.
2016
2016 starts with the need for adjustment again. What were longer
term worries about fundamentals have now become more immediate fears about
valuations and as a result decreases in the overall value of the index. There
could be quite significant selling over these months, although it is doubtful
that the conditions are as bad as march 2009.
In any case, there is evidence of an alternative positive
view manifesting by April. The two views seem to be fighting it out with
volatility and significant funds flows accompanying the mood. There is an unusual focus on the market at
this time.
The mood does not change much in the coming months. This is
an extremely important time for the market. With a series of peaks and troughs
as weaknesses in some stocks are uncovered. There may be some significant
changes in constituents
There is a longer term evaluation over the summer – although
the themes don’t go away, there is less activity and more talk.
While the challenges haven’t disappeared by October, some of
the expansionary effects have. The
result is likely to be suppressed trade and values
However, by December the picture is clearer.
There is gradually less stress on values but more on volumes as once again
market participants wait to see what will happen next. The year end might be
surprisingly positive.
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