Small Cap Spy: A bright start to the investing year

Equities have carried good momentum into the new year. But will it last?

market outlook from Growth Company Investor

The new investing year has started quite brightly, carrying over positive momentum from the closing weeks of 2016. In fact the FTSE 100 has recorded 14 consecutive up days. As we noted in the previous Spy, smaller companies and AIM shares have also enjoyed this bull run, booking double-digit percentage gains last year.


The stock market’s willingness to shrug off political and economic uncertainty has been impressive. We certainly don’t have a settled ‘narrative’ about what the future holds and this might have been keeping many investors on the sidelines. The Bank of America Merrill Lynch survey shows that institutional investors hold 5 per cent of their portfolios in cash. It also pointed out that 2016 represented the worst year for equity fund outflows since the bear market of 2008.


That cash level, along with general scepticism, is likely to provide a helpful prop for the stock market. It suggests there might be plenty of potential new buyers for equities, particularly given the ongoing lack of competition for returns due to very low bond yields and interest rates. This doesn’t mean the market is bound to go up of course, but it does remove the threat of share prices falling because everyone is fully invested and overly optimistic.

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