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I used to live in Kansas. It is, for the most part, a very large, flat plain. I used to say that “It’s not the end of the world, but you can see it from here.” (Did I mention that I now live on the east coast of the US, just a few minutes from the beach? I still remember how my excitement grew on the day of my move here, leaving the world of eternal sameness and heading for a spectacular new place.
The FTSE has been a lot like Kansas over the past year. It was a year ago this month when the FTSE 100 finally topped the 6600 mark. I remember the exhilaration surrounding that day. Half the excitement was in surpassing the mark. The rest of the excitement was in the anticipation of how high the index could climb. It did, in fact continue to climb past the 6800 mark, only to fall back sharply in June 2013 to just over 6000. And the party was over. Although the index has risen gradually since then, it has done so in a series of two steps forward, one step back patterns centered more or less over the once coveted 6600 mark. The latest gain began on 15 April when the index closed at 6584. Yesterday the index gained ground all the way to 6852 by the closing bell.
Traders began to get excited when the index had gained even more ground following early trading to open at 6870. Within 64 minutes the index reached 6876. Observers were strapping themselves in and preparing for launch in the the septosphere. Then the index ran our of gas and fell back to 6846 by 11:00 a.m., only to take off again to close the day at 6873, short of the 7000 dream.
There can be hardly a doubt that the news of the 2.9% growth in the British economy reported late last week has fueled the market, especially when combined with an increase in manufacturing output and a decrease in the UK’s trade deficit. The National Institute of Economic and Social Research (NIESR) has not adjusted its forecast for the year upward from 2.4% to 2.9% growth and is predicting a 2.4% annual growth rate for 2015 and 2016. Much of the performance of the FTSE 100 will depend upon continued good news.
This is about the point in a financial news column where the pundit pontificates about the possibilities. This is also the point where I shall, therefore, disappoint you, because I do not pretend to know what the Footsie will do. I do know, however, that before it reaches the glorious and heretofore un-achievable 7000, it must first pass 6930, which is the highest mark the index has ever set (1999). Once that record is broken, I shall become a wee bit more excited than I am at the moment. Don’t get me wrong. I am excited. I’m just not that excited.
My enthusiasm is tempered by the FTSE’s most recent history, this series of upward surges followed by drawbacks. Just a quick glance at the index over the last year reveals that it has been over its 90-day moving average about 50% of the time. Which means that it has been below the 90-day average half the time as well.
I do not know if or when the FTSE will pass 7000. We may not be there yet, but we can see it from here. My inclination is to suspect that the pattern of the past twelve months is likely to continue. That means that I expect that, if it does happen, it might be later in 2014, perhaps during the Santa Effect. Who knows? Let’s break 6930 first.
