NEWS AND ANALYSIS

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 Monday 08 August 2016

PM Bulletin: FTSE 100 chart

 

 

Last Friday’s blowout Non-Farm Payroll number has helped the Dow Jones Industrial Average make back most of its losses since 20th July when it closed out at an all-time record high of 18,637. At the time of writing the index is back within 1% of this level. Meanwhile it feels like a day doesn’t pass without the broader-based S&P500 making a fresh record high.

Many commentators have noted that the moves in these US indices come despite the US being mired in an earnings recession. If the second quarter earnings season continues as it began then this will be the fifth consecutive quarter of year-on-year declining earnings, and the sixth for revenues. This means that most price/earnings ratios (price per share divided by earnings per share) show US equities and their corresponding indices trading at elevated levels – areas where typically investors start to cut their exposure to equities and increase their exposure to bonds. Of course, this isn’t happening now as the bond market is also looking expensive by many measures, and offers little, if anything, in terms of yield. 

The major European indices are all trading somewhere short of their all-time highs. The feeling is that while US stocks are expensive, at least the economy there is stronger than in other developed countries and inflation is picking up. That’s not the case across Europe, and concerns over the banking sector continue to weigh.

But the UK situation may be a bit brighter. The FTSE100 is around 5% below its all-time high from last year and the index has had a stunning recovery since its post-Brexit sell-off. There are still stocks within the index which are struggling, particularly anything domestically-focused such as housebuilders, insurance and certain banks. But the ongoing weakness of sterling continues to give the big multinationals a lift as it makes their products and services cheaper to overseas buyers, and non-sterling earnings translate back into big sterling profits.

PM Bulletin

These two daily charts suggest that the FTSE100 is in an upward trend, although not a particularly strong one. The bottom chart also shows how the index has broken above resistance around 6,740. This level represents the 76.4% Fibonacci Retracement of the April 2015-Feb 2016 sell-off. If it can hold above here then further gains are possible.

However, it’s important to remember that this latest push higher comes on the back of two major events: the BoE’s rate cut and stimulus followed by Friday’s US non-Farm Payroll data. So it’s worth waiting to see if this upside momentum can be maintained, or if this latest rally stalls on aggressive profit-taking.

PM Bulletin

David: The FTSE100 is around 5% below its all-time high from last year and the index has had a stunning recovery since its post-Brexit sell-off.

Disclaimer:

Spread Co is an execution only service provider. The material on this page is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by Spread Co Ltd or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

 

Posted by David Morrison

Category: PM Bulletin


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