January 26, 2016

Pegler’s Market Report – 26.01.16

by David Pegler

in Press Releases Research

As published in the Brighton Argus on page 21 (business pages) under the title Pegler’s Market Report – a new weekly column:

Market Pullbacks Need Perspective

Financial markets are once again making headlines with the FTSE-100 index falling from highs of over 7,000 index points in April last year to levels below 5,700 at its lowest, so far, in January. This sharp fall reflects greater uncertainties about the global economy, which have impacted investor confidence.

The focus as ever has been on the blue-chip index, however the FTSE-100 is rather an unusual animal, being so heavily influenced by international oil firms and miners – the two sectors that have taken a beating thanks to the heavy falls in commodity prices. The second tier of largest companies (the FTSE-250), which is more representative of the domestic economy, has fallen far less sharply.

Heightened equity market volatility is naturally a worry for all investors. However unlike the last period of sustained stock market falls between 2007 and early 2009, the UK economy is not currently anticipated to move into a recession. Indeed, as recently as last week, the International Monetary Fund confirmed that their expectation is for above 2% economic growth in both this year and 2017.  Looking globally, economic growth is anticipated in all other major developed countries around the world too. There are certainly imbalances in the global economy but currently they are much less extreme than back in 2007.

Following comments by the Governor of the Bank of England, UK interest rates are highly unlikely to be increased over the next few months. Low interest rates support consumer spending and job creation. Oil prices back down to $30 a barrel, is also welcomed by most consumers. Hopefully stock markets will start to stabilise globally as investors acknowledge some of these positives and realise that future opportunities still outweigh threats.

As for companies that Sussex readers may be familiar with, G4S, which still has significant operations in Crawley, has been back in the news with more negative PR in relation to some of their many varied services, this time the management of youth offenders centres and asylum seekers’ housing, which is a further blow to their reputation and potential share price recovery.

Elsewhere, there has been more upbeat news from a select number of food and general retailers due to a relatively decent Christmas trading period and increased corporate activity. Housebuilders, telecoms and the major pharmaceutical companies also continue to buck the trend.