Last month I admitted to feeling a little edgy about the market. We’d had a few profit warnings and there was ongoing media chatter about the ‘uncertain’ economic outlook to contend with.
My main concern however was simply the way the market was acting – it just didn’t feel good.
In fact the FTSE 100 did fall by almost 5 per cent during the following week before steadying its nerves.
There’s been good support for this index since the middle of the year in the 6600-6700 region and it held this level again. So while it did turn out to be a down month, the falls weren’t that bad in the end. Of course this outturn represents another humiliation for the many expert commentators who predicted a meltdown following the US Presidential Election.
While Mr Trump’s victory becomes increasingly understandable the more one thinks about it, it was certainly a big shock at the time, even for those of us who have learned to be sceptical of opinion polls.
As a Trump win became apparent the Dow future dropped 800 points, no doubt influenced by the surprise and also by the media’s despair over the result. However when the market opened and the real money came out to play, stocks went up. In fact US stocks have carried on going up into new all-time high territory, which combined with the dollar’s strength means that they have generated a 26 per cent return so far this year for sterling investors.
Interestingly, US smaller companies have been outperforming the broader market. Wall Street strength should provide some gravitational pull for our stock market, though it’s still making heavy weather of things at the moment.
One bright spot though, has been the better performance of AIM this year where there seems to be some genuine momentum. We’ve also had the substantial value available in some small caps highlighted for us by a couple of recent bids.
Lavendon was featured in the income portfolio piece in September’s GCI at a price of 122p. It has received a takeover approach and now trades up 60 per cent at 195p. Lavendon is a solid cyclical stock that is trading well, but whose valuation reflects the market fear’s of a downturn.
Brammer and Avesco have also agreed to be taken over at even bigger premiums, a staggering 125 per cent in the case of the latter.
In these cases there’s a huge disparity between the valuation trade buyers and the stock market place on small companies.
That has to be encouraging. We have also had some decent economic stats reported during the month, with inflation lower than expected and retail sales recording their strongest rate of growth for 14 years. So putting it all together I shouldn’t be surprised if the market went on a bit of a run during what is traditionally its strongest period of the year.
However I’m not holding my breath!