Block your ears if you still believe in Father Christmas, because there is no credible sign of a FTSE 100 Santa rally this year. Instead, his elves have been working on a rather different kind of gift.
Rather than a rally to push the index over its 52-week high of 6878, we’ve had a crash instead. The FTSE 100 dropped 5% last week, and is now a whisker away from 6300.
I certainly didn’t put that on my Amazon wishlist.
Bah! Humbug
It’s hardly surprising that Santa hasn’t delivered the goods. There has been little for investors to ho-ho-ho about lately. Slowing Chinese GDP growth, the EU omnishambles, a self-inflicted Russian meltdown and Middle East mayhem have all dented the Christmas spirit.
Even the best gift the West can get, the falling oil price, has failed to lift the gloom. Instead of applauding lower pump prices, analysts are warning that it is a symptom of slowing global growth, and could tip us into outright deflation.
‘Tis The Season To Be Sorry
The gloom mongers have also warned of nasty knock-on effects if the big oil producers such as Russia run into deeper financial difficulties, or US shale prospectors are unable to pay their debt obligations.
And there is the underlying fear that this is a Saudi gameplay to drive out cheaper competitors, that will eventually push up prices for all. US ‘stripper’ wells are already suffering.
No wonder Santa isn’t delivering this year. He likes cheerful little boys and girls, but there aren’t many around.
Jingle Hell
I’m actually relieved we haven’t had a Santa rally. I’d hate to end this turbulent year on a false tide of goodwill to all men, only to see it ebb suddenly in the new year.
2015 looks set to be turbulent. The Eurozone could finally implode, Putin may get desperate, Shinzo Abe in Japan is making an all-or-nothing bet with his country’s future, and as we have seen in Sydney, the spectre of Islamic terrorism is only a lone crank away.
It would be crazy for Santa to drive the FTSE 100 higher right now. I’m glad to see it slipping to 14.54 times earnings, below the 15 that is usually seen as fair value.
That lifts its yield to 3.70%, which is highly tempting, as the prospect of a base rate hike in 2015 slowly recedes.
The current FTSE 100 crash isn’t what you asked for, but don’t be disappointed. It may turn out to be just what you always wanted.
