Investors ready for festive Santa rally
INVESTORS are getting ready for a “Santa rally” as stock markets prepare to put on their traditional pre-Christmas show.
This would bring yet more good cheer to the UK economy, which continues to defy Project Fear’s warnings that a crash would punish Britons for voting in June to quit the EU.
Instead, the economy has since boomed and a festive rally would top off a good year.
This year has seen stock markets rebound strongly from a disastrous start when the FTSE 100 crashed to a threeyear low of 5,557 in January.
The benchmark index crashed again after the EU referendum victory but quickly recovered to break the 7000 barrier as investors enjoyed the subsequent Brexit bounce.
CHRISTMAS IS COMING
Now analysts say markets could well end 2016 on a high, despite continuing problems in the stricken eurozone and fears of an Italian banking crisis.
Adrian Lowcock, investment director at fund manager Architas, said the Santa rally is real and investors should get ready for some excitement. “The last two weeks of the year are statistically the strongest period of the whole year.”
The FTSE100 has risen in 26 out of the last 32 festive seasons. “Since 1984 the index has risen by an average of 2.3 per cent during December.”
BE OF GOOD CHEER
Lowcock said the Santa rally is typically driven by “festive cheer and seasonal goodwill”, as well as other factors such as fund managers tidying portfolios for the end of the year. He added: “Stock markets have been on a strong run following Donald Trump’s surprise victory, which has given investors new optimism and hope for the US economy.”
Next year should also prove rewarding for investors, with UK company dividends forecast to rise sharply in 2017.
Many investors and pension savers top up their income with regular dividends from leading UK companies such as BP, HSBC, Royal Dutch Shell and Vodafone, which all now yield more than 6 per cent a year.
Michael Clark, portfolio manager of the Fidelity MoneyBuilder Dividend Fund, forecasts that UK dividend payouts will increase by 10 per cent in 2017. “Equities will continue to deliver solid real returns over time and an attractive level of income.”
UK companies have been helped by sterling’s postreferendum fall as this helps to boost the value of their overseas earnings once converted back into pounds, Clark said.
It has been a turbulent year for the pound, which fell sharply after Brexit, but Clark added: “Sterling will probably remain relatively low, but I do not see further falls in the currency.”
Latest figures show the UK economy continues to defy the doom-mongers with GDP rising to a healthy 0.5 per cent in the third quarter.
The weaker pound has helped to boost exports, business investment is growing faster than expected, and UK retail sales grew once again in November, boosted by Black Friday.
New car sales are set to hit a record high by the end of this year, according to the Society of Motor Manufacturers and Traders, beating last year’s figure of 2.63 million.
SEASON TO BE JOLLY
There is also some good news for those approaching retirement as annuity rates have leapt more than 10 per cent in the last three months, new figures from Retirement Advantage show.
Pensions technical director Andrew Tully said: “Gilt yields are on the way up again and annuity companies are pricing to attract business, pushing annuity rates back up. This should make it easier for those approaching retirement to get a higher annuity income.”
A Santa rally would also hand a seasonal boost to the growing number of retirees who have opted for income drawdown, which involves leaving your money in the stock market and taking income as needed.