February has arrived! Can it be as kind to investors as January? At least, January appeared to be proving kind towards the end of last week.
Indeed, the index was on track to produce the sort of return that would have followers of old stockmarket adages salivating at the prospect of a positive year ahead.
The particular piece of old world wisdom that is getting people excited is “As goes January, so goes the year”. Along with “Sell in May and go away,” it is sometimes, but not always, correct. But the better tone to markets as 2012 got underway is worthy of remark, if for no other reason than the news flow has hardly been encouraging.
We know, for example, that during the last quarter of 2011 the UK slipped back into what economists like to call negative growth (we need two quarters of shrinking activity for it to qualify as a recession) – not welcome news for the Chancellor preparing his Budget. A drop of 0.2 per cent is hardly panic-generating stuff but it does allow political opponents to cry that austerity is not working. His Budget might be interesting as a result.
Meanwhile, we are in election years in France and the US while Germany is little more than a year away. This should all add to the uncertainty, but there is clearly a belief that new administrations will probably take the important action so far avoided by those in power, lest it damages their re-election chances. America is probably the exception, given that the economy there does at last seem to be turning the corner.
So, can the market shrug off the indifferent news and maintain its upward course? The jury is out, of course, but there are some interesting contrasts in both opinion and signals. Take the view of the technical analysis, for example. Accepting there are as many ways to interpret charts as there are to conduct fundamental analysis, it is fair to say that chartists are more prone to be bearish than bullish.
They will be examining the sentiment signals, trend lines and relative strength indicators and concluding that, after such a recovery, people have become overbullish, trend lines will constrain upward movement and relative strength will weaken. In other words, shares will fall. Fundamentalists will point to the strength of companies, continued economic growth in emerging markets and above trend inflation flattering financial assets. So, shares should rise.
You pays your money and you takes your choice but look beneath the headline numbers and you can unearth some interesting facets of current market performance.
For example, listening to a portfolio manager commenting on how one of his clients had fared, I learned that the benchmark index has risen by 7 per cent in the last quarter but is still 7 per cent down over six months.
And the variation in how different segments of the market have behaved is also marked. Despite the strong showing in January, by the middle of last week, the FTSE 100 index was still around 17 per cent below its all-time peak, achieved on the last day of business in the last millennium. The FTSE 250 index, by contrast, was significantly higher – and this despite the claim often made that the Footsie is an index of winners.
For advisers, having to contend with all the new rules and regulations that will be assailing them as the RDR moves from project to reality, trying to determine where to place clients’ assets is as difficult as ever.
And as I write, the great and the good – and the downright powerful – are gathered in Davos to put the world to rights. A step back in February to reassess the situation looks like good sense to me.
Brian Tora is an associate with investment managers JM Finn & Co