FTSE 6,000 Anyone?

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By

Bruce Jackson

Published in Investing Strategy on 13 October 2009

The bulls are in the ascendency, with some saying the market still offers good value. Is it time to pile in?

Who would ever have thought the FTSE 100 would rise in 2009?

It's a funny old game this stock market investing lark. One minute, you're watching your hard-gained wealth disappear before your very eyes. Then, seemingly in the blink of an eye, your investments are flying higher.

You are a no-hoper loser investor one day, and an investing genius the next. Such has been the roller-coaster of a stock market over the past 12 months.

Yesterday the FTSE 100 stormed through the vitally irrelevant 5,200 level. Over in the US, Dow 10,000 is just a small part of a bee's anatomy away.

Put together, from where we were just a few short months ago, this is positively nose-bleed territory.

And now for some relatively meaningless yet interesting statistics about the FTSE 100…

1. Up 17.5% so far in 2009

If it can hold these gains, this year will turn out to be a stellar year for stock market investors. Most investors target annualised gains of around 10%, so this will have them cheering from the rafters. Who would have ever thought?

2. Up 50.5% from its 2009 lows

Wow. What a bounce. Those brave soldiers who piled in at the bottom of the market will be sitting on stunning gains. Even better, if they piled into multi-bagger shares like Gulf Keystone Petroleum (LSE: GKP), Trinity Mirror (LSE: TNI) and Johnson Press (LSE: JPR) they'd be sitting on a small fortune. Wonders never cease.

3. At 5,210, it's back to Sep 2008 levels

Recession?

What recession?

As far as the main index is concerned, it's almost like the recession never happened. Those investors who kept dripping money into an index tracking fund over the past 12 months have been amply rewarded. If they'd looked at their statements in March this year, they might have got a shock, but as long as they stuck to their long-term investing strategy, all has worked out very well. Amazing.

4. Still down 23% from its 2007 high

Regardless of 'The Great Bounce', this has still been a tough couple of years for stock market investors. It has been even worse for investors in long-term dogs like BT Group (LSE: BT), Yell Group (LSE: YELL) and British Airways (LSE: BAY), to name just a few. The FTSE 100 hit 6,754 in mid-2007. Right now, that still seems a long way off. Reality check.

Look Out Below

So, where to from here?

As usual, we have bears and bulls. The bears point to an elongated recession, and/or a double dip, or W-shaped recession. For example, the British Chambers of Commerce (BCC) said recently business confidence was improving but the economy was still "frail".

The bears also point to stretched valuations in some shares, particularly in the FTSE 250, where ARM Holdings (LSE: ARM) trades on a forward P/E of 23 and Carpetright (LSE: CPR) trades on a similar rating. If the economy has another blip, it will be a case of "look out below" for such highly rated companies.

Good Value

The bulls point to strong economic recovery, and of earnings bouncing back much faster than analysts are currently expecting. Record low interest rates help, as does the billions of pound, dollars, yuan, euro and yen of government stimulus money being pumped into world economies.

As reported on Bloomberg, James Macpherson, head of UK equities at BlackRock Investment Management in London said "Although the UK stock market has made handsome progress since March, it still remains attractive... UK shares offer good value."

David Jones, chief market strategist at IG Index, said the FTSE 100's "move through the 5,200 mark seems to be sewing seeds that this is the start of the next move higher for shares."

FTSE 6,000?

It's easy to get caught up in the euphoria of a rising stock market. It's easy to jump in and buy just because it has been rising. The market may go higher still. FTSE 6,000 anyone?

I've long given up predicting the direction of this market. It's a fool's game. I've also given up prognosticating on the economy. It's guess work, even for the brightest and best economists.

In today's market, most of the blindingly obvious bargains are gone. That doesn't mean there isn't value out there. It's just a little harder to find. Nothing wrong with that, mind, because apart from the odd period of utter panic, the stock market is always like this. There are no free lunches any more.

More on the economy and the markets:

> If you're in the market for buying shares, consider opening an online broker account with The Motley Fool's Share Dealing Service. You can buy and sell shares in real time for a flat rate of just £10. Click here to find out how you can open an account for free today. There is no obligation to trade

> Bruce Jackson does not have an interest in any of the companies mentioned in this article.

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Comments

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Fingered 13 Oct 2009 , 3:06pm

6000 anyone...... perfect timing. Dancing lessons anyone?

Sadiesage 13 Oct 2009 , 3:11pm

As always a good article. It might be of interest to note that shares seem to do especially well in years ending in '9' and lamentably so in those endind in '0' - worth checking out?

If my recollections are right, you shouldn't be long of the market next year!

Dave304 13 Oct 2009 , 4:12pm

Why is the FTSE rising against most predictions? Could it be the fact that there is a reasonable prospect of a Conservative government next year?Shares never rise appreciably during a Labour government. So it's time for this tired Labour government to go and let's get some prosperity back in our lives.

Davie.

kimbo56 13 Oct 2009 , 4:20pm

For me this was a biased article! What about public and Govt debt, national borrowing!! Where are the jobs to back this rosy picture which has been manipulated into being by the puppets of the ruling elite and their puppets in the G20! What about QE what about the underpinning of the FTSE Etc... How many years at zero pay increases is it going to take to turn a global corrupt manipulated market system that we have at present! Another thing does it really matter if it were at 6,7,8000 when the real economy is down the toilet along with the currency! All I ask from an article is that there is a balance of information! Yes a few key shares in Co's supported by Darling and have risen with other peoples money!! Let's wait and see how much this bear market rally will go!
Look at
Public Debt
Govt Debt
Bail out money to banks
Shortfall on pensions
Rising unemployment
Shortfalls in Govt revenues
The truth is out there if you are prepared to face it! and it is getting worse by the day by avoiding it!

supasap 13 Oct 2009 , 5:33pm

Hi Fingered nice to see you back, with your prediction of FTSE at 1600 seems like Kimbo56 wouldn't mind being your dancing partner

kimbo56 13 Oct 2009 , 5:50pm

Heh! Supasap, if you think anything I have written is incorrect then feel free to reply with a counter argument!! Try this link http://www.marketoracle.co.uk/Article8004.html and get back to any one that post's here with your reasons why you wear rose tinted glasses!? I dance with no one! Just try to follow the the information that leads to the facts!!!!!!!! Not the rose tinted propaganda that comes out of the one sided media outlets!

supasap 13 Oct 2009 , 9:24pm

don't you even dance with your lass.....at weddings perhaps? yes the facts the facts..... truth is we have never had it so good materially in the rich UK and I see no evidence of this declining, we are just great at creating false needs and sustaining the level of effective demand in this country...... hence why each day the road congestion gets worse, people get fatter, designer clothes are worn by most people, we all have plasma tv's getting bigger and bigger which replaced the perfectly functional tv's we had before, window cleaners hard to come by...... but I shall concede that you are correct once these tendencies are reversed which you'd think they would have been in the greatest recession for years.... but as I have pointed out many times to Fingered who also likes to use indices instead of the real world indicators around us all, this has been a mere blip on the onward march toward materialistic wealth for most of us at levels our great grandfathers could only have dreamed of ..... doom and gloom camp is nonsense...... you also need to brush up on your blogging etiquette..... no need for so many exclamation marks

LeVenturian 13 Oct 2009 , 9:43pm

In the long run all recession is good for share prices. In the good times senior management find it more difficult to refuse when departmental heads wish to expand their staffing levels.
BUT
When a recession hits and profitability is threatened then companies look very carefully at all their costs with the result that they come out of the recession lean and mean.

We had experienced an extremely long period of boom which will have inevitably resulted in lots of inefficiency and non-productive cost creaping into industry's cost base.

The elimination of this inefficiency will eventually result in increased profitability as the companies come out of recession.

I'm not saying when we will see this profitability flowing through, but it will happen.

kimbo56 13 Oct 2009 , 11:27pm

Hi Supasap
If you think material wealth has been good for the people, then I think you are mistaken as it is nothing more than a carrot to get people to part with their hard earned money on goods that they did not really need!. I see plenty of evidence here in the UK,USA and Germany by the number of business closures that things are getting worse not better.Yes road congestion will get worse when you have Govt giving tax payer money to people to go out and buy new cars they could not afford in the first place with credit they which just makes the bubble that much bigger. People get fatter because of the rubbish they putting their stomachs mostly due to relying on fast food take always because of insufficient time working in a 24/7 environment. Designers clothes just a name to charge more. Plasma TV's are out dated and are now outsold by the LCD TV's. I could explain why but will not bother. The perfectly good tube based TV's you speak of used far too much energy and energy savings is what it's all about. You need a window cleaner? our neighbour has his own business and seems to be doing alright. Real cash not borrowed money (which the Govt appears to think we all need to get out of this depression Not recession) is going to be harder and harder to hold on too with the looming increase in tax and other bills. As for doom and gloom, I would just like to say it is not just what the UK politicians decide that dictates how this depression will unfold it is counties like the USA who are key players in the corrupt G20 + nations. The USA have debts close to $70 trillion dollars and rising year on year and you call it a mere blip! You keep can keep your head in the sand that's your choice. Finally as for blogging etiquette.... well that is not going improve my families future is it.
Try using your computer to get a broader view of what is going on in the world. Try not to rely on what you read and hear in the UK. Read the German, USA Etc.. News papers, look at what people are saying on www.marketwatch.com where no one in the last 4 years has suggested I need to improve my blogging etiquette! I for one would not risk my family and children's future on your style of thinking or etiquette.

supasap 14 Oct 2009 , 8:59am

Hi Kimbo, material wealth is the only real purpose of the economic system in terms of more modern cars, TVs, mobile phones and electronic gadgets and casual observation and social trend surveys show that the possession of these things is on the increase and so it has been in this economic climate ie post 2006 which has been labelled negative...... even the poor and chavs get shot of their perfectly functional TVs and mobiles for the latest and gretest models..... now morally and environmentally it is criminal and we maybe should feel uncomfortable about it but my point is that these are signs of a very wealthy society... now when these signs indicate a reduction in the ownership and usage of these "goods" produced by capitalism then yes I shall concede that things are getting worse but despite all the indices such as debt levels and unemployment that we can quote, the reality on the ground is that we are so rich in the UK that people are still flocking to Starbucks up here in the north to pay best part of £5 for a coffee and a muffin

Luniversal 14 Oct 2009 , 11:18am

"Sewing seeds", Bruce? "Ascendency"? Get a grip.

The USA's government debt is now almost four times its GDP, compared with under three times in 1933 at the trough of the Great Depression. Fact.

Deleveraging has a long, long way to go, with many scares for equities along the hard and rocky road.

A short-term rally in shares of this order is consoling but no biggie: the market all but doubled in one month early in 1975. Nevertheless, we are in real terms well below the level markets hit at the end of 1999-- when we were wetting ourselves about the Millennium bug.

The assault on that level just before the Lehman Bros crash failed, as the present one may do: we're still 1,500 points shy of the '99 top on the FTSE 100, remember.

That could mean the rally has far further to go, but it could indicated tiredness stretching over decades (cf 1932-52, Japan since 1989) as the world economy rebalances and the western world's corporate sector, staggering under states' financial strains, is eclipsed by new powers.

Moreover, the general impetus among UK punters is to conserve cash and pay down debt, not to plunge into risk investments. The rally since March has been talked up on very thin volume.

As they used to say in cowboy movies: I don't like it, it's quiet out there-- too quiet.

At least stick to big, defensive high yielders which now offer historically remarkable real after-tax income... assuming their prices don't discount further massacring of dividends.

Fingered 15 Oct 2009 , 4:37am

Simply soppy supasap singing same silly song.

Fingered 15 Oct 2009 , 4:49am

No doubt Bruce as a perma bll value investor, you'll be looking for your portfolio to Waltz it's way up along with the FTSE to 6000. Higher yes....how higher? ... Ah now that would be telling :-) Tic-toc, tic-toc. Book some dancing lessons has been my advice Bruce for you and others at the TMF. - You are frequently wrong footed on the market trend by missing significant turning points.

supasap 15 Oct 2009 , 8:11am

nice bit of aliteration mr fingered..... better than your prediction of FTSE at 1600...... not singing that song much these days are we

Fingered 15 Oct 2009 , 9:25am

tic-toc, tic-toc. :-)

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