FTSE 100: third week of gains
Was that it? The year began with warnings to sell up and hunker down for another financial crisis. But now investors have been left scratching their heads after the FTSE 100 enjoyed its third week of gains to soar back to where it started 2016.
The index rallied 1% on Friday to close at 6,199.43, just shy of the 6,242.32 level at which it opened the year and above the 6,093 where it closed on the first trading day of the year.
It marks a 12% turnaround from a three-year low hit in February as the London blue-chip index slumped along with stock markets around the world. Investors had dumped shares amid a commodities rout and on worries about the global economic outlook and China's economy in particular. As the sell-off deepened, economists at the Royal Bank of Scotland warned clients: "Sell everything except high quality bonds."
Now the FTSE 100 is rallying again, stock market experts warn it still has some choppy months ahead. But at the same time a mood of cautious optimism is spreading in the City.
"It's not to say we are out of the woods but things are looking a bit better than they were at the beginning of February when the bottom was falling out of the market," said Michael Hewson, chief market analyst at financial spreadbetting firm CMC Markets UK.
The fortunes of miners in particular, a hefty chunk of the FTSE 100, have turned around in recent weeks. Rallying metals prices have helped boost the share prices of companies such as Glencore, BHP Billiton and Anglo American.
But there were still signs that investors remain jittery, notably the soaring price of gold, long seen as a safe-haven, added Hewson. The precious metal is up almost 20% since the start of the year.
"You have to be choosy about where you put your money," he said. "I am cautious about this [stock market] rally. Gold prices have rallied alongside it and that could mean investors don't trust this rally." Analysts say a combination of factorsgot stocks off to a bad start in 2016: signs of industrial sector weakness in the US, China's slowdown and its currency devaluation, sharp falls in the oil price and other commodities, and expectations that the US Federal Reserve would raise interest rates four times this year. Bank and commodity stocks were among the hardest hit.
Against that backdrop the FTSE 100 suffered its worst opening week to a year since 2000 and continued to tumble until 11 February.
Since then, nerves have been calmed by three factors, according to Nick Nelson, head of European equity strategy at Swiss bank UBS. Firstly, slightly brighter economic news out of China and the US; secondly, a pick-up in energy and mining stocks; and finally, a weaker pound, which helps the FTSE 100's many exporters.
Nelson warned that financial markets will remain jittery given the wounds of the last crash are still raw. "We all anchor to our most recent experiences and if you have been in investment and markets for 10 years or so, what you will remember is 2008-9," he said. Laith Khalaf, senior analyst at financial firm Hargreaves Lansdown, echoed that.
"There is a sense that everyone is perhaps poised for the music to stop and they don't want to be left without a chair. That explains the stop-start nature of the run we have had," says Khalaf.