Where next for the stock market, the economy, the green shoots, interest rates, Andy Murray and the Ashes?
The 2009 investing year has been an incredible ride so far.
The FTSE 100 lost a seemingly unremarkable 4% in the first half of the year. But in the meantime, we had to endure a gut-wrenching crash in banking shares like Royal Bank of Scotland (LSE: RBS) and Barclays (LSE: BARC), followed by an even more stressful period in early March when world stock markets were in freefall.
In mid-December last year, I stuck my neck out and made 4 predictions for 2009. Making predictions in such a volatile market and in economic conditions never before seen is fraught with danger.
Not surprisingly, some of my predictions have been wrong, so far at least. For example, I said the stock market will "oscillate in a range from around 3,900 to 4,700."
As we know, the FTSE 100 fell briefly to below 3,500 in the March Meltdown (trademark pending), something I certainly didn't predict. I also said 1% interest rates were the likely low point of the interest rate cycle. They now stand at 0.5%.
However, I am not deterred, and shall go forth and make some more predictions. They should not be taken as gospel, and each involves a degree of gut-feel. Like investing itself, I aim to be mostly right rather than precisely wrong. You could argue (at least I'll argue) my stock market and interest rate predictions so far are mostly right, or at a minimum, in the ballpark.
Without further delay, amidst a deafening drum-roll, here are my four predictions for the rest of 2009…
Prediction #1 -- The Stock Market
I'm minded not to change my prediction of the market trading in a range between 3,900 and 4,700. Today the FTSE 100 trades at 4,341, bang in the middle of the range.
That said, FTSE 4,700 might be a bit of a stretch. To get there, I'd suggest we'd have to have even more tangible evidence of economic recovery than we've had so far.
I think the banking shares generally have run too far too fast. They won't power the FTSE 100 much higher, and in fact could end up being a drag. Big oil stocks like BP (LSE: BP) and Royal Dutch Shell (LSE: RDSB) are trading on high dividend yields, but now the oil price has already recovered to around $70 a barrel, there is no obvious catalyst to drive the share prices sharply higher.
The stock market usually is driven higher by increased earnings. In a weak economy, companies will continue to struggle to grow profits this year and next. Forced to pick the level the FTSE 100 will close at precisely midday on 31 December 2009, I'll go for 4,444, down from the 4,666 I predicted six months ago.
Prediction #2 -- The Recession
There are some signs of economic recovery. Commodity prices have recovered, lead by oil, which has doubled since its December lows. There is hope China's massive stimulus package will power commodity prices even higher.
Then there is the High Street. This week Marks & Spencer (LSE: MKS) announced the slowest decline in same-store sales for almost two years. It appears those 90% of UK consumers who still have jobs have regained the confidence to start spending some money again.
Confidence gets you so far. But the stark reality remains… this is a financial recession. Consumer balance sheets have been hammered, courtesy of falling house prices, plunging stock markets and rising unemployment. It will take years to recover.
And as for China… yes, it is a huge economy, and infrastructure projects will help prop up commodity prices. But don't expect the Chinese export market to suddenly take off, because us Westerners are not spending at anything like the rate we were in the go-go years. As a result, I wouldn't be surprised to see commodity prices fall from where they are today.
As for the economy, expect unemployment to keep rising, house prices to keep falling, talk of green shoots to largely disappear, replaced by talk of an L-shaped recovery. It will be slow going.
Prediction #3 -- Base Interest Rates
This one is easy. I just can't see interest rates going up in the next six months. The UK economy has just suffered its worst slump in output for 50 years. In the US, the Federal Reserve have just said interest rates there will stay at "exceptionally low levels" for an "extended period."
UK base interest rates will remain at 0.5% throughout the rest of this year. Whilst that is good news for mortgage holders (if you haven't looked at remortgaging, what's stopping you?), it is awful news for savers. Savings interest rates of 1.5% don't rock my boat. But at least your money is safe!
Prediction #4 – Andy Murray & The Ashes
Andy Murray has a chance, but he won't win Wimbledon this year. Sorry. But it has been an incredible journey, and baring injury, he looks a winner in the future.
The Ashes series has the potential to be dominated by the bat, as both teams appear to lack pure bowling firepower. I'll sit on the fence and predict a 2-2 draw, meaning Australia will retain the Ashes. Sorry.
More on the economy and the markets:
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> Bruce Jackson does not have an interest in any of the companies mentioned in this article but he does come from a land down under.
