Well, it didn’t take long for Mr Carney (the Bank of England governor) to do as I predicted in my last post. According to the FT, he has already started to push the idea of interest rate rises into the long grass. Hopefully, this means that the FTSE will now start to concern itself with the improving picture of economic growth and stop falling back relative to the Dow.
It has done moderately well since mid-2012 and if it could summon up the energy for a final blow-off surge next year it would be positioned for a crash. I wouldn’t expect an immediate turnaround though – the market could well go sideways for quite a while before sentiment turns. The only problem with this prognosis is that most people seem to be expecting further gains and Mr Market has a habit of disappointing the majority. Looking at the
AAII weekly sentiment survey though, we are not in bubble territory yet; it’s time to get worried when bulls reach around 60%, and we are only at 47% at the moment, so there is scope for further progress.
The Dow has done considerably better than the FTSE over the last eighteen years, quadrupling in value, and looks to be within striking distance of 20,000. It is already quite expensive, but not exceptionally so by recent standards, so I think it is perfectly possible it could hit that target next year. The taper announced on Wednesday was very mild and the stock market responded very favourably due to the removal of the intention to wind QE down to zero quickly. The Fed also promised to keep interest rates low for a long time to come. With a deal having been done on the US budget, the Dow only has to worry about the
economy now, which seems to be improving.
