With the FTSE 100 flat since January, will a Santa Rally bring festive cheer to investors in the index?
Chris Beauchamp, a senior market analyst at IG, says Yes.
Sell in May and go away is an adage that investors never tire of repeating. But perhaps they would be better served by learning “buy in October and hold until New Year”.
Seasonal trends indicate that the final quarter is the best period for the index, with the final week being full of festive cheer.
While the economic backdrop looks less than encouraging at present, the prospect of further quantitative easing by the European Central Bank, plus the cumulative impact of Chinese rate cuts, should help to put the index on a much firmer footing come 31 December.
Much of this will depend on the mining sector, down 19 per cent so far in 2015, but a bout of bargain hunting, aided by even a short-term rally in commodity prices, could put the fight back into big commodity names, placing a rocket under the index as a whole.
We think that a close back above 7,000 by the end of the year is by no means implausible.
Chris Bailey, European strategist at Raymond James, says No.
In equities, optimism usually leads to more optimism. October 2015 will go down in the record books as the strongest month for the FTSE 100 since July 2013.
With the uncertainties of August and September disappearing into the rear view mirror, a tone of optimism is suddenly sweeping the investment community and a “Santa Rally” through November and December feels like an inevitability.
But as all experienced investors know, when something feels inevitable, it often is already fully factored in, and therefore never happens.
This is the reality for the FTSE 100 today. Last week’s lacklustre UK and US economic growth data and the ongoing corporate quarterly earnings disclosures highlight the patchy backdrop.
Buoyed by Chinese interest rate cuts and anticipated further Eurozone stimulus, many global indices around the world have partied hard. However, as any winter season reveller knows, drinking on an empty stomach can lead to problems.
For the balance of the year, the FTSE 100 is running the risk of a serious hangover.