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There is a Ally Bank commercial in the US that goes something like this:
TV Host: “Tonight, our guest . . . Thomas Sergeant, Nobel Laureate in economics and one of the most cited economists in the world . . . Professor Sergeant, can you tell me what CD rates will be in two years?”
Professor Sergeant: “No.”
Long, silent pause.
TV Host: “If he can’t no one can.”
The FTSE 250 index has climbed its way from 9,714 on 19 December 2011 to a near record close of 12,188 on Friday, 07 December 2012. That’s a 27% increase in the last twelve months. The index had climbed to 11,785 on 19 March, and all indications were that it was going to cross the bar set at 12,220 in May of 2007, before dropping for 10,347 on 01 June. From that time it has risen consistently, if not steadily, reaching 12,116 on 14 September. There, it seemed to run out of breath in the thinner air.
The index is now in the fourth ascent of the mountain since 14 September, having fallen back before reaching 12,061 on 05 October, then another slight fallback before reaching 12, 71 on 18 October. Before this push that ended 32 pence short of its pinnacle, the index made yet another ascent to 12,121 on 02 November.
The mid-cap stocks represented by the FTSE 250 have been outperforming the elite FTSE 100. (Remember that the FTSE 100 are the elite, “blue-chip,” top 100 companies by market capitalization on the London Stock Exchange. The FTSE 250 are the next 250 or, in other words, the 101st through the 300th in capitalization rank.)
One of the more overriding reasons that the 250 is outperforming the 100 is that the weight of the large mining and energy companies in the 100 have had, frankly, terrible years, and have, therefore, dragged the FTSE 100 index average down. Typically, mid-caps seem to do better, on average and, therefore, the FTSE 250 as well, than the blue-chips in a period of market recovery. Though the opinions regarding why that happens are many and varied, the author tends to believe that the smaller cap companies are able to be more nimble and able to inherently respond quicker to market reversals. Though the large caps may typically have more operational options to reverse direction, those options are, nonetheless, also more difficult to exercise in terms of the tightness of the turn and the time needed to complete it.
The big questions on the minds of market gurus, however, are can the FTSE 250 reach a record high, will it reach a new record high, and when will it reach a new record high? Unfortunately the performance of the indexes are records of current and past activity. Whilst a trend line might suggest the future direction of the index, it is still nothing more than an interpretation of a trend based on the past. The past still does not indicate the future. So, while literally thousands of people are waiting on pins and needles, I offer you this profound wisdom on the matter from the lips of Nobel Laureate Thomas Sergeant:
ADVFN: “Professor Sergeant, can you tell us if and when the FTSE 250 will set a record high?”
Professor Sergeant: “No.”
ADVFN: “If he can’t, no one can.”
That’s our story and we are sticking to it.
