After a disappointing year for the stock market, I reckon we all deserve a bit of Christmas fun. So will those North Pole elves manufacture a Santa rally this year?
We were treated to a Spring bounce, with the FTSE 100 finally hitting an all-time high of around 7100 in April, but it was followed by a summer of pain. The hurt began with a brief US tech sell-off, intensified after Black Monday in China, and has given us little respite since due to Middle Eastern miseries and uncertainty over when the Federal Reserve will hike US interest rates. The index is down 800 points, or nearly 12%, since April’s growth shower.
What Might Have Been
The global stimulus blitz spearheaded by Japan, China and Europe should have blown the world economy to fresh highs but trade is stalling instead. October saw an 18.8% drop in Chinese imports and 6.9% drop in exports. The OECD is warning that global trade is slowing. It predicts growth of just 2.9% this year, down from its previous forecast of 3.7%. Not much seasonal fun there.
Pain Game
The FTSE 100 is down around 4% so far in 2015 and many leading companies have done even worse. Oil major Royal Dutch Shell is down 24% year-to-date, mining giant BHP Billiton is down 26% and Asia-exposed bank Standard Chartered is down 36%. I almost forgot mining misery Glencore, off a whopping 63%. Royal Dutch Shell is the only one of the four I would be tempted to buy now.
Yet I reckon the misery has over done. There is plenty of good news out there. In the US, non-farm payrolls leapt by 271,000 in September, trashing a far more pessimistic forecast of just 180,000. The death of British manufacturing has been exaggerated once again, with a forecast-busting October manufacturing PMI reading of 55.5.
Christmas Punch
European Central Bank president Mario Draghi is ready to unleash yet more monetary stimulus and now there is talk of a eurozone rate cut as well. Japan is throwing the kitchen sink at its problems via Abenomics, and Chinese stimulus could also help revive spirits in the weeks ahead. Cheap oil and low inflation should be making Western consumers feel richer. Finally, it could be the season to be jolly.
The big danger now is that the Fed will snatch away the Yuletide punchbowl and serve us a dose of costlier borrowing instead. If Janet Yellen does play Scrooge, markets could be in for a seasonal shock. But a US rate hike would also be a vital step forward on the road to normalisation.
Miss This And Yule Be Sorry
Christmas is still six weeks away and a lot could happen in that time. November is a gloomy month at the best of times, so now isn’t the time to take the market’s end-of-year temperature. Everybody feels a bit low, but it won’t last. Now could be a good time to launch an early Christmas shopping expedition and snap up some of your favourite stocks before Santa climbs into his sleigh. This year’s volatility is throwing up more bargains than Black Friday.
Lloyds Banking Group, Royal Dutch Shell and household goods giant Unilever are all riding high on my Christmas wish list. What’s on yours?