In recent years, the FTSE 100 has roughly fallen into a seasonal pattern. It has started the year boldly, shed most of its gains over a troubled summer, then rebounded to end the year brightly.
So far 2015 has been broadly the same. The FTSE 100 started the year at 6457, climbed a healthy 10% to hit a 52-week high of around 7100 in April, crashed below 6000 in late August and again in September. Now it is on the up again, trading at 6434 at time of writing.
Christmas Is Coming
The clocks have gone back, winter is on its way, and the Christmas promotions have already started in the shops. So is the index set for another end-of-year-surge?
It certainly felt like it on Friday, with the bulls sensing blood following European Central Bank president Mario Draghi’s dovish talk, a surprise Chinese interest rate cut, and shrinking expectations of a US rate hike. Markets show they have still animal spirits, what a shame they only really get frisky when they scent another central banker splurge.
The FTSE 100 could certainly storm the 7000 mark this year, provided two things happen. First, we need Mario Draghi to hand markets a yuletide gift in the shape of further monetary easing in December. And second, the US Federal Reserve must resist the temptation to play the Grinch and ruin our festive fun by hiking interest rates before the year end.
Flying High
Personally, I expect the US and UK to move even more slowly than markets expect on interest rates, despite their fitful tough talk. Rates aren’t going anywhere for years, the global economy simply isn’t fit enough to take its medicine. I also expect further slowing in China, which may serve to stay the Fed’s hand, maintaining the “bad news is good news” trend of recent years. Then all we need is an upturn in sentiment from today’s unduly pessimistic outlook, and FTSE 7000 is on.
With the FTSE 100 trading at around 16 times earnings and yielding around 3.85%, it certainly isn’t overvalued. And even if the index doesn’t fly, plenty of member stocks look tempting buys at today’s prices.
Shopping Season
My share of choice is currently Lloyds Banking Group, which yields just 1% today but is forecast yield as much as 5% or 6% by 2016, which should also work wonders for its share price. Despite that, it is still trading at a tempting valuation of less than 10 times earnings. Barclays is another bank getting on with its recovery, and also looks a tempting buy today.
Pharmaceutical giants AstraZeneca and GlaxoSmithKline look great income buys in our low interest rate world, yielding 4.36% and 5.83% respectively. BP and Royal Dutch Shell may have been sunk by today’s low oil price but I can’t see $50 a barrel surviving far into 2016, and if the price starts rising again, both stocks should pick up at an accelerated rate.
As 2015 moves into its investment endgame there are plenty of reasons to go shopping shares. A seasonal surge in the FTSE 100 would be the icing on the cake.