FTSE To Be Ruled By Fear

The classic drivers of the stockmarket are Fear and Greed. Right now, we are in Fear mode. To be fair, last week it was FOMO – Fear Of Missing Out – as the market bounce continued.

But this was a short term reaction, not a turning point.

FTSE over the last 6 months

The sell off in March was vicious. Once investors woke up to the dangers of the pandemic, pandemonium broke loose. The hedge funds piled into to short positions as everyone else piled out. And so the market overshot and went far too low. The small rebound sine then can be characterised in three ways.

  1. Bargain hunters thinking shares look cheap – on account of them being cheaper than they were. This doesn’t necessarily make them a bargain though.
  2. Hedge funds taking profit by closing out their short positions
  3. The classic dead-cat bounce, very often seen after a large fall. Incidentally, does anyone know if a dead-cat really does bounce if dropped from a great height? We vote that the classic TV programme Mythbusters should be reprised just to test this theory.

Dear reader, please note that none of these reasons refer to the Efficient Market Hypothesis, which we have previously claimed to be bunk. Click here to read why.

We do not believe this is the bottom of the market, nor anywhere near. It seems clear that with unemployment quickly rising to 10% and many firms only carrying on as staggering survivors, it is wishful thinking topped by political sleight-of-hand to think that the economy will just restart where it left off. Thanks for giving us so much of our children’s money, Mr Sunak. Bridging the gap makes sense, but what will we find on the other side? Will this economic viaduct be like the Humber Bridge, leaving Lincolnshire full of optimism, but then finding the other end is in Hull?

The harsh reality is that we are heading for a recession. The economy will take years to return to those heady levels of 2019. All the subsidies in the chancellor’s imagination cannot create a thirst to invest and grow. Nor can it revive dead firms.

If you must play in the market, think of using 1 or 2% of your portfolio as speculative fun. Otherwise, hunker down. This will be a long haul.

FTSE Forecast for January is…….. LOWER!

We’ve been forecasting FTSE100 with a six month timeframe for six months. Which means, oo-er, that we have just reached the outcome of our first prognostication.

Stock Prices green for up, but we think down

The best traditions of economic forecasting is to make the call, try to write some eye-catching blurb – and then MOVE ON, and never re-visit. After all, what is to be gained by checking on whether the forecasts were correct? Sooner or later, the call will be just ridiculously incorrect, which will make the author look stupid. And at other times, it will be spot on, so the writer then starts making hubristic comments about their skill (even though everyone knows it was only luck), and so still looks stupid.

However, one of our many maxims is “You can’t tell stupid”.

FTSE over the last year, with date of forecast shown

And so here goes with our review of January 2019’s forecast. At the time, FTSE was in the doldrums, having fallen for six months. When we made our forecast, it was 6855. We foresaw a reversal, and a strong climb to 8050. Well, we got the change of direction correct. Last night it closed at 7532. So it didn’t climb quite as far as we expected. Blame Brexit for that. The whole world seems to be using Brexit as the catch-all excuse for any under performance, so there is no reason LondonMarketComment can’t do the same! We thought that one way or another, it would be resolved by now and we could all get on with the more interesting parts of our lives. Anyway, we award ourselves 7 out of ten for that call.

The New Forecast.

We’ve been saying for a couple of months that we saw FTSE100 up to 7500 in July, and then a fall to 7200 by November. We got the 7500 right. We now say that the 7200 of November continues into January.

Why do we say this? Right now, the stockmarket has it’s positive head on. Bad Non-Farm Payrolls for May were taken positively. We understand the logic of a weak economy making interest rate rises less likely….. but, er, doesn’t that same weak economy make it harder for companies to make money? Subsequently, the June NFP came in much stronger – but that didn’t dent market sentiment either. So the market is a bit blinkered.

Meanwhile, we can all see risks to the global economy. Nobody knows where the US/China tariffs-that-are-really-strategic-politics will end. Trump and Xi Jinping both need to win this battle of wills. Meanwhile, Europe is catching a cold from Chinese hesitancy. The middle east could blow up (though we don’t foresee that). Oh, and last – and probably least – there is Brexit.

In conclusion, the market is in happy mode, but there are plenty of potential threats over the next six months. A downside surprise feels likely. So we see FTSE struggling to go higher, with a dip due by year end and no climb in January. Doom doom doom!

FTSE100 Forecast Lowered By Brexit Delay

The uncertainty over Brexit goes on – and so our FTSE Forecast goes down.  We are promised that 31 October is a hard deadline – er haven’t we heard that before?

 

Market Screens are Green

For the last three months, we’ve been working on the idea that in each case Brexit would be over and done within the 6 months of our forecast.  For that to happen this time, we have to believe that Mrs May can get her deal approved at the 4th time of trying.  So we will work on the basis that Brexit is still on-going by October.

 

What else do we see?  The US economy looks a little fragile, which is not fully priced in.  Europe looks very fragile.  China continues to kick the debt-can down the road.  (Is a debt-can like a petrol-can, but potentially more explosive?) But of course weaker economies mean no interest rate rises. Oil is being bid higher, but not in a way that threatens inflation taking off.

 

We don’t see earnings crashing in US, so we continue to think shares will trend slowly higher – but the UK market will not do as well as it would have done had Brexit been resolved one way or another.

 

Previously, we saw FTSE100 at 8050 for July and August and 8150 in September.  See our articles here. However, we think that the 50% move towards those levels is as far as it is going.  This morning, FTSE is 7442. For October, we forecast FTSE100 at 7600.