Tuesday 7 April 2009

Any more legs to this market rally?

The FTSE ended up down today after a month of spectacular gains, it had the odd bad day last week too. The US markets were the same, as bank concerns reared up again. Some of the UK bank stocks have shot to the stars the past two weeks. How long can this last?

There are very few fundamentals to support the rally. In fact, there are only two:

1) People are bored with depressing news and market falls, they want rallies and optimism; it is spring after all. Sentiment counts for a lot, even in the face of overwhelming evidence.

2) Quantitative Easing, yup, printing money is so radical and its effects so unknown that it is messing with the markets. QE seeks to produce inflation, and with inflation coming, rational actors will want to own assets. Hence shares rising...perhaps?

On the easier side, Gold is falling quite rapidly now, back down to $872 (I sold at this level a few weeks ago, thinking it too toppy!). So at least with Gold back in some sort of normal range, it will be possible to switch out of stocks when the next bear hits.

I have a hunch this is going to be a lot sooner than we would all like it to be. The chart is a great prediction from Market Oracle lastyear.


Bill Quango MP said...

There was a strong feel good factor last week. G20 and Best housing sales since 2007. Good retail figures too.
But equally there was a lot of largely overlooked bad news. Cars, aerospace, defence,transport,airlines,landlords..

But it there a definate air of 'no one must spoil the party'

This week, more measured already. Even the media. Sky even had some sort of debt counter on their screen. Expect some reality this week.

Letters From A Tory said...

I agree with Bill. It will take a few weeks for the G20 to work its way out of the system, plus the Budget is likely to be a string of bad news as far as market confidence is concerned.

Demetrius said...

What does the FTSE represent now? It does not relate much to the real UK economy, or for that matter the EU. It relates only to those companies who list, and whose stocks are currently traded in such a way as to put the theoretical capital value up to the top of the list. Similarly the UK property market has long since been divorced from the actual business of essential housing for the working population. Tracking these figures in the hope of trying to work out the economics is rather like forecasting a football match on the basis of which cheerleaders have the best routines.

Sebastian Weetabix said...

I got back into shares at the end of february & I've been enjoying the dead cat bounce since then. But I flogged them all off yesterday - having enjoyed the rise over the last month I can't see any real reason for optimism.

Naturally I find myself hoping the market drops like hell for the next few months. It may be a dirty unpatriotic thing, but ohhh it feels so good.

CityUnslicker said...

BQ/LFAT - people can't seem to wait for this party to be over...

Demetrius - yes, but interestingly, many of the recent changes have made the FTSE more relevant as various foreign resources companies have fallen out. Still your point overall is correct, then again the FTSE250 is in a much worse state and more accurately reflects the UK economy

SB - A good guess, you certainly are not going to lose anything by staying out at the moment.

Anonymous said...

Is that a Jackson Pollack original by any chance? It made as much sense to me....:-(

Steven_L said...

I keep finding myself wishing I sold out at the top of the recent rally, but I'm value investing for the long term now and ignoring the short term peaks and troughs.

I look at it this way, every time I buy and sell it costs me fees and stamp duty. If I've picked a dog I've picked a dog.

Trying to play the short term peaks and troughs will just drive you up the wall.

At the end of the day they can rape your bank deposits with inflation too - nothing is 'safe'.

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