It was another fantastic week. The FTSE 100 index rose to another all-time high to close at 8,433.76 on Friday. The Bank of England said the first interest rate cut could come next month. And growth in the first quarter of the year was an annual rate of 2.4 percent. What is happening?
The Footsie first. Look at this in global terms. The global rally in stock prices began in the United States and was particularly evident in the so-called Magnificent Seven, seven of the main large technology corporations in that country.
But this year two things have been happening. Markets in the rest of the world have begun to catch up, and within the United States, the focus has expanded to other companies.
So while the S&P 500 index continues to dominate (it’s up more than ten percent this year), the Footsie isn’t far behind, up more than nine percent, and Germany’s DAX is up a bit. better, with an increase of 12 percent. And within the United States, the performance of the seven has been uneven.
Apple is a great company, but its shares have been stable this year, while Tesla’s are down almost a third. Microsoft, on the other hand, has secured its place as America’s most valuable corporation, worth $3.08 trillion, an increase of 12 percent.
How far ahead?: The London market remains cheap by both American standards and its own historical ratings.
So let’s look at the stock’s performance here primarily as a recovery.
The London market remains cheap by both US standards and its own historical ratings, and that suggests this rerating could still have some way to go.
My own prediction that it would reach 8,500 by the end of the year seemed difficult when I made it last December, but now it seems decidedly unambitious. It’s not even June yet and a lot can happen in the second half of the year, but UK pension fund managers who don’t own Footsie shares have a right to question their managers for failing to miss out on this boom. .
It now looks like an even bet on an interest rate cut in June. Two things would make it an odds-on bet.
One would be for April’s consumer price index to fall below two percent. The other would be for the US Federal Reserve or the European Central Bank, ideally both, to reduce their rates.
The next meeting of the Bank of England’s monetary policy committee is not until June 20, so those other variables will be known when it decides.
The change in mood was prompted by positive comments from Bank Governor Andrew Bailey and, more importantly, Sir Dave Ramsden, the deputy governor, who voted in favor of a cut. Ramsden is respected for his feelings towards both the UK economy and the behavior of financial markets, so this was a powerful signal.
The long road to somewhat cheaper money will have begun, another reason for stock prices to recover.
And on Friday came the news that the recession was over. Actually, I hope the statisticians will discover that there was no recession anyway when they review the numbers as more data comes in.
But let’s take the Office for National Statistics calculations at face value and accept that GDP in the first quarter grew by 0.6 per cent. Multiply that by four, as Americans do when they report their numbers, and you get an annual rate of 2.4 percent.
That’s the kind of growth rate the economy should be able to sustain over the long term and, in fact, has achieved for most of the last 200 years.
That doesn’t mean he’ll reach that level this year. But it’s plausible that growth will be well over one percent, and I could see it closer to two percent.
It certainly makes the current consensus that it will be just 0.4 percent look totally wrong, and the folks at the International Monetary Fund and the Organization for Economic Co-operation and Development, who have recently lowered their growth forecasts for the Kingdom United, they will have become idiots once again.
Let’s not get carried away. Remember the old stock market saying: “Sell in May and be gone.” But it’s been a good week, and not before its time.