Why There Is Still Time For A FTSE 100 Santa Rally This Year

Once again, the FTSE 100 has run out of steam just as it threatened to finally top its all-time high of 6930, which it hit almost 15 years ago on Millennium Eve.

Oil and energy stocks are to blame, with BG Group, BP, Weir Group and Tullow Oil all flashing red in the wake of OPEC’s refusal to cut production.

So the FTSE 100’s rocky year continues, knocking it back to 6675 at time of writing, roughly where it started in January. We should be grateful it wasn’t worse, given all the problems afflicting the planet, including the eurozone, Ukraine, Islamic State and tremors in China.

Happily, all the shocks were soon shrugged off.

Christmas Cheer

As we stagger into December, I still believe that markets could could end the year on a high. Black Friday has just fired the starting gun on the annual Christmas shopping frenzy, and there’s still time the traditional Santa rally.

The problem is that Europe keeps trashing the party. Latest figures show Eurozone inflation down again to just 0.3%, and that’s before the latest drop in oil prices has been factored into the figures.

But that also gives European Central Bank president Mario Draghi yet another reason to do what he has wanted to do all along, give the region an unbridled blast of QE.

His recent claim that the ECB’s Governing Council is “unanimous in its commitment to use other unconventional instruments,” has fired rumours that it will finally launch a blitz of bond purchases at its next meeting on Thursday, December 4th.

If Draghi does deliver (and it’s still very much in the balance), then Santa will surely fly.

Festive Fun

The FTSE 100 doesn’t have to travel far to top this year’s 52-week high of 6878. A rise of 3% should do it. Breaking through the 7000 pain barrier would take a rise of nearly 5%, but who knows what could happen if traders really get into the festive spirit?

At 15.5 times earnings, the index is at close to fair value, so a bumper rally is tricky to justify at today’s prices, and given today’s challenges. So don’t get too carried away.

Although with the index currently yielding 3.47%, income seekers have a good reason to get stuck in.

New Year Blues?

Even if the Santa rally does come to town, the big question is whether the party can continue into January and beyond. Given all the uncertainty out there, that could be too much to ask for, even at Christmas.

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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.