David Prosser: Recessionary woes flatten the Footsie
Saturday 01 August 2009
Outlook: Close, but no cigar. For much of yesterday morning, the FTSE 100 flirted with its 2009 high, only for disappointing economic data from the US to prompt a modest sell-off.
It was a downbeat end to what was otherwise a strongly positive week, not only because the index failed to close above the 4,639 points it last achieved on 6 January, but also as the setbacks underlined just how fragile market confidence really is.
Indeed, the fact that investors chose to focus on below-par US consumer spending data, rather than the GDP numbers, which were actually better than expected, is in itself a good guide to how we might answer the obvious question about the market's bull run – its sustainability. The gains of the past 10 days (the past three months, in fact) have been based on improving sentiment rather than any tangible improvements in corporate earnings. Fair enough, naturally, to be more optimistic if you believe that better times for the global economy are just around the corner, but the trouble with sentiment-driven recoveries is they are hugely vulnerable to a dose of reality. Even the smallest bit of negative news has a disproportionate effect.
Stock market bulls have to hope that the V-shaped recovery that the British Government, in particular, is still forecasting does actually materialise. Markets anticipate economic events – conventional wisdom says six months before a recession ends is the moment to invest – but when that anticipation proves off-kilter, corrections can be sudden and sharp. Sadly, there is every reason to worry. The happiest conclusion we can draw from the data we have seen so far suggests that the recession is levelling off. There have been some green shoots, but there have been disappointments too. Certainly, there is no sign of the strong upswing for which the market is crossing its fingers.
Moreover, the window is closing. Markets have been rising for four months now, so two-thirds of that six-month lag time is up. If we don't begin to see data that is consistently more positive soon, investors will begin to question the judgements they've been making – and to reshape the equity market recovery into something more like the W or L that more gloomy analysts predict.
There's been plenty of talk recently about that familiar old stock market adage "sell in May and go away...", most of it about how investors who took its advice would have missed out. But remember we're only halfway through the period that the saying describes, with the second part of the adage, "...don't come back 'til St Leger's Day" advocating avoiding markets until mid-September.
The FTSE 100 was trading at about 4,200 in early May, about 10 per cent below today's levels. There's plenty of time for it to return to that level, and plenty of reasons to fear it might.
Missing Malaysia Airlines Flight MH370: Wreckage could be found within a week as search reaches 'very critical juncture', says minister
The man they forgot to lock up: Mike Anderson was sentenced to 13 years in jail, but the police never came
Unbeliebable: The White House offer 'no comment' to anti-Justin Bieber petition
Loch Ness Monster found on Apple Maps?
South Korea ferry disaster: Families watch as remains of Sewol victims returned to shore
The food poverty scandal that shames Britain: Nearly 1m people rely on handouts to eat – and benefit reforms may be to blame
Scottish independence: It is the English who should be on their knees, begging the Scots to vote ‘No’
'Sinful': Video of British Muslims dancing to Pharrell Williams's hit Happy comes under attack
Nigel Farage: I’m taking on the status quo, and the Establishment’s fighting back
An open letter to Nigel Farage: you may smile, but I am not seduced
Abdullah Deghayes: My son was the martyr of a just cause, says father of British teenager killed in Syria conflict
- 1 Easter egg hunt horror as mother finds dead body under deck of house
- 2 A bottle of wine a day is not bad for you and abstaining is worse than drinking, scientist claims
- 3 Unbeliebable: The White House offer 'no comment' to anti-Justin Bieber petition
- 4 Loch Ness Monster found on Apple Maps?
- 5 Criminals ‘using unmanned drones and infrared cameras to find illegal cannabis farms’ – and then steal from the growers
iJobs Money & Business
Negotiable: Harrington Starr: Database Team Lead ( Leadership, Sybase, Compute...
£40000 - £50000 per annum + Bonus+Benefits+Package: Harrington Starr: C#.NET D...
£25000 - £35000 per annum + Bonus+Benefits+Package: Harrington Starr: VB.NET S...
£45000 - £55000 per annum + Bonus and Benefits: Harrington Starr: Trade Suppor...