Accendo Markets’ 2014 view is for a continuation of the FTSE 100’s 5 year uptrend from the financial crisis depths with potential for an early revisit of May’s 6,875 high which was itself within grasping distance of the 1999/2000 6,940 all-time highs. While the UK flagship index has performed well in 2013 (+13.5%), it has delivered a marked underperformance compared to major index peers on both sides of the Atlantic (DAX, CAC, S&P 500, DJIA; +18% to +26%).
For the Bulls, this offers the chance that it plays catch-up and certain blue chip names continue to outperform strongly. For the bears it highlights weakness derived from such a wide geographical exposure of its components (many not UK-linked, natural resources heavy, China/emerging markets and USD sensitive). Nonetheless after months of gains we do note indices trading well above long term rising support which could lead to some revaluation and profit-taking before the uptrend resumes. US politicians could well be the culprits of this early next year.
Central banks are likely to maintain their volatile influence on markets with continued threat by the US Fed and UK BoE of withdrawal of the extraordinarily easy monetary policy - put in place to help revive the global economy - as signs of recovery continue to emerge. The Eurozone’s ECB will keeps things accommodative (maybe even more so) given the region’s uneven and more fragile recovery and North/South divide, while the BoJ is set to keep working at reviving its nation after years of stagnation.
With many equity markets trading at or near all-time highs, however, investors are likely to increasingly accept more hawkish central bank messages (and the potential reversal of easy policy; US QE3 tapering, UK rate rise) as an economic positive rather than an easy money negative, taking a more mature and long-term view and disposing of the dominant short-termism which developed amid the financial crisis that evolved into the sovereign debt fiasco - one which has mercifully remained calm for the last 18-months thanks to the ECB’s backstop but which nonetheless continues to fester in the background, with the risk of another unwelcome appearance.
We expect macro data flow to remain jumpy (we’re realistic that nothing goes up or down in a straight line) but for the general bias in the UK and US to be positive in terms of growth creeping higher and unemployment rates slipping south to justify the build up to the policy changes that the central banks are preparing us for. China will do whatever is necessary to keep the red growth train chugging along at high single digits. Europe will likely see Germany stay the course while its neighbors remain under the pressure of reforms and rejection of tough measures.
We’re excited about 2014. As we approach the end of the year in such positive fashion, we expect optimism to flow through and coupled with ever greener shoots of economic recovery and investors benefiting from another year of post-crisis experience the markets look set to maintain their northerly course.