Boom bust stock market
City experts and The Independent's chief business commentator gaze into their crystal balls and try to make sense of after a year in which nearly every prediction made was shattered. After a depressing , will be any better?
Will the economy and the stock market get mired in Brexit blues, or can they shrug off the uncertainty? And what about the rest the world, with political instability almost everywhere you care to look? I asked a group of experts from the City to look into their crystal balls and make some predictions for the year ahead. Below are their responses, along with my assessment.
Among their number is at least one acknowledged Brexiteer too, as well as at least one rabid Remainer me. Each of our oracles has come up with a prediction for the FTSE , and a share tip. It speaks volumes that nearly 1, points separate the most optimistic and pessimistic forecasts. I expect to see a correction of some description by the spring followed by a slow summer before the market regains some poise at the end of The UK Government will continue to borrow ahead of its targets.
Inflation will be sufficient for the Bank of England to contemplate at least one rise in interest rates leading to more tension with ministers. The economy as a whole will be sluggish.
Consumer confidence has helped sustain it up until now, but instability and inflation will start to eat into that. The excitement on Wall Street about the prospect of Trump tax cuts and other measures to stimulate the economy will be tempered as a man hopelessly unsuited to the office is faced with the hard realities of trying to govern. The market will ultimately finish little changed on the year. CEO Leo Quinn described the business as an ice berg at the interim results stage. Having been burnt by several big events this year, investors should watch political developments in Europe, namely elections in the Netherlands, France and Germany.
We can only hope that the pollsters prove more accurate in than they did in The European Central Bank will continue to ease further, while the Bank of England may actually have to contemplate higher rates if UK inflation picks up. Having ended the year on a high , stock markets will perhaps be due an early correction in January. Much of the rally since early November was built on the expectation of a Trump stimulus programme, rather than the reality.
At some point, details will emerge, but if the market deems the effort to be insufficient we may be facing a choppy few months. It is also going to be a year of watching the US dollar — expectations of higher US rates could mean that the late bounce in the greenback will gather pace, with serious implications for US companies, and for commodity prices. With commodity prices looking weaker thanks to a rising dollar, and the pound likely to stabilise around current levels, perhaps the coming few months will be a bit more difficult.
The index may well move above its high of 7,, and push on towards 7, With this in mind, I think house builders could be due an improvement, and for this we could do worse than pick Persimmon. A healthy history of special dividends, plus a solid land bank and strong demand for houses, plus a remarkably undemanding forward earnings multiple of 9, makes the shares appeal.
Next year promises to offer further potential political risk events for investors to navigate. The known unknowns include, for example, elections in Europe including Germany, the Netherlands and France , the realities of a Trump presidency and the start of Brexit negotiations. The lesson of is to remember that political risk is not all negative for markets, especially if it is seen to accelerate the inevitable shift in emphasis from monetary to fiscal policy. Perhaps the only certainty is that uncertainty leads to market volatility and the path towards our forecast of 7, will not be all plain sailing.
Typically the price to earnings multiple of equities contracts in periods of monetary tightening, rising interest rates by the US Federal Reserve. However, there are two reasons to remain positive. First, bond yields are rising from a very low base and down at these levels, share prices and bond yields tend to be positively correlated. We are usually cautious of optimistic growth forecasts at the start of the year. However, higher commodity prices, less pressure on the profits of financial companies and positive foreign exchange translation give us more confidence that, this time, the profit cycle is turning.
However, the valuation is now very attractive and the growth story is far from over with 20 per cent plus forecast in We think PPB can even exceed those expectations as it delivers on merger synergies, continues to take market share and demonstrates operational gearing in turning sales growth into earnings.
In the UK economy is likely to do much better than many expect. It will boost exporters. The Bank of England, currently forecasting economic growth of 1. Inflation is also unlikely to be as big an issue as many fear.
Of course, the price of imported goods will rise as sterling is lower, but a significant amount of the pain is likely to be taken by retailers accepting reduced margins — both on the high street and supermarkets — as competition remains extremely fierce. So, price rises may not be passed on to the consumer. The FTSE is likely to reach 7, by the year end, boosted by better global growth, a resilient UK economy and rising oil prices.
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Kier group is well placed to benefit from the expected increase in UK infrastructure spending over the next few years. There are some concerns over the level of debt, but it is covered by development property and house-building assets.
The number of financial sector professionals in Britain and continental Europe looking for jobs in Ireland rocketed in the months after the UK voted to leave the European Union. Theresa May has said the UK "cannot possibly" remain within the European single market, as staying in it would mean "not leaving the EU at all".
Raymond McCord holds up his newly issued Irish passport alongside his British passport outside the High Court in Belfast following a judges dismissal of the UK's first legal challenges to Brexit. SDLP leader Colum Eastwood leaving the High Court in Belfast following a judges dismissal of the UK's first legal challenges to Brexit.
Migrants with luggage walk past a graffiti on a wall as they leave the 'Jungle' migrant camp, as part of a major three-day operation planned to clear the camp in Calais. The Adventist Development and Relief Agency Adra which distributes approximately meals daily in the northern Paris camp states that it is noticing a spike in new migrant arrivals this week, potentially linked the the Calais 'jungle' camp closure - with around meals distributed today. Many farmers across the country are voicing concerns that Brexit could be a dangerous step into the unknown for the farming industry.
Bank of England governor Mark Carney who said the long-term outlook for the UK economy is positive, but growth was slowing in the wake of the Brexit vote. The Dow Jones industrial average closed down over points on the news with markets around the globe pluninging. Immigration officers deal with each member of the public seeking entry into the United Kingdom but on average, 10 a day are refused entry at this London airport and between and , 33, people were detained at the airport for mainly passport irregularities.
A number of global investment giants have threatened to move their European operations out of London if Brexit proves to have a negative impact on their businesses. Following the possibility of a Brexit the UK would be released from its renewable energy targets under the EU Renewable Energy Directive and from EU state aid restrictions, potentially giving the government more freedom both in the design and phasing out of renewable energy support regimes. A woman looking at a chart showing the drop in the pound Sterling against the US Dollar in London after Britain voted to leave the EU.
Young protesters outside the Houses of Parliament in Westminster, to protest against the United Kingdom's decision to leave the EU following the referendum.
Applications from Northern Ireland citizens for Irish Passports has soared to a record high after the UK Voted in favour of Leaving the EU. NFU Vice President Minette Batters with Secretary of State, Andrea Leadsome at the National Farmers Union NFU took machinery, produce, farmers and staff to Westminster to encourage Members of Parliament to back British farming, post Brexit.
The latest reports released by the UK Cabinet Office warn that expats would lose a range of specific rights to live, to work and to access pensions, healthcare and public services. The same reports added that UK citizens abroad would not be able to assume that these rights will be guaranteed in the future. A British resident living in Spain asks questions during an informative Brexit talk by the "Brexpats in Spain" group, about Spanish legal issues to become Spanish citizens, at the town hall in Benalmadena, Spain.
The collapse of Great Britain appears to have been greatly exaggerated given the late summer crowds visiting city museums, hotels, and other important tourist attractions. Global growth rates are questionable as is the quality of corporate earnings. Bank shares have already blazed the trail during this last quarter. Many are of the opinion that US markets could make a quantum leap in the first quarter, despite the threat of three hikes in FED rates in and no doubt Dollar earnings in FTSE companies could be positive, but Brexit negotiations could get very acrid, confrontational and illogically unpleasant.
The possibility of arrogance on both sides could well damage their respective economies. Also inflation seems to be gaining momentum. Were it to go above 3 per cent in the UK, the effect could be negative for housing and consumer debt.
Boom and Bust Cycle: Definition, Causes, History
Though I am comfortable with the US stock market, I think the FTSE will have trodden water by the end of at best. They will almost certainly say the same about the UK. My pick of the year is RPC Group, the largest plastic container manufacturer in Europe. I hope RPC will be in the FTSE by the end of As we enter many economists are pretty negative on the prospects for the UK, and the only way to judge whether their forecasts prove to be on the money is to wait and see.
However, the stock market is a very different beast to the UK economy and there are reasons to believe that it will remain well supported. Interest rates are still low and show no signs of revival, a generation of baby boomers is retiring and looking for income, and many people are still sitting on cash waiting for a market fall to put their money to work, all of which provide a positive backdrop for shares.
The UK stock market is also very internationally diversified, so even if things to take a turn for the worse in the UK, the Footsie has other sources of revenue. In years gone by, buyers had to view cars in person, but now browsing is increasingly done online. The group says it attracts around 48 million visits each month, an audience six times larger than its nearest competitor. With a weak pound and economic uncertainty threatening new car sales, the second hand market could pick up the slack.
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