The Debate: After reaching its highest point since 2008, can the FTSE 100 continue its recent rally?
YES
Tom Stevenson
As the FTSE 100 share index moves safely back into pre-financial crisis territory, the question is whether its recent performance can continue for the rest of 2013. We analysed the performance of the index since its inception in 1984, and found that it has risen in the first month of the year in 17 out of 29 years – with this year likely to make it 18 out of 30. In 14 out of the 17 years that the FTSE 100 rose in January, equity markets continued to rise in the 11 months that followed. This suggests that there really might be something to the so-called “January effect” (the idea that when share prices rise in January, the odds are stacked in favour of them rising for the rest of the year). I’m usually sceptical about these kinds of rules of thumb, but it is hard to ignore these facts.
Tom Stevenson is an investment director at Fidelity Worldwide Investment.
NO
Gemma Godfrey
The FTSE 100 has been rallying as the fear of risks, like a Eurozone exit or fiscal cliff stalemate, has receded. But growth is now needed for another leg up: there has been relief in the diagnosis, but the patient must now show signs of recovery. The concern for the UK is that it is tough to see a possible source of growth, especially after the latest economic figures showed us courting a triple dip recession. Looking overseas – as many FTSE companies do – the outlook for growth is more encouraging. But troubles in Europe and the US are far from over, as the former grapples with fiscal and banking union, and the latter with delayed spending cut decisions. Equities may provide value over the longer term, but you will have to encounter heightened volatility – and a likely correction – in the immediate future.
Gemma Godfrey is head of investment strategy at Brooks Macdonald.