The week that was
24/01/2012
Reflecting on the year so far, despite it being only three weeks' old, the FTSE 100 has posted its best start in 23 years, according to market analysts. Whilst we are sceptical about forecasting, David Schwartz, the stock market historian, reported that "Rallies in January are a good indicator of stock market performance for the rest of the year. Since 1945, there have been 45 years out of 67 when the market rose in January, with the market closing the year ahead in 37 of those years - an 82% success rate." However, a cloud still hangs over equity markets where many private investors are concerned, despite the negativity in the media slowly falling away to make room for stories such as those seen in the last week.
A series of successful eurozone sovereign debt auctions, encouraging global economic data releases and better earnings from the US banking sector all combined to boost equity markets last week, maintaining their upward momentum. The FTSE 100 pushed ahead to a six-month high, breaking through the 5,700 level and closing at 5,728.55, while European markets advanced for a fifth successive week, with banking stocks leading the way. In the US, five-month highs were reached as earnings reports continue to build optimism over the future of the world's largest economy. The S&P 500 closed the week at 1,315.38, a gain of around 4.3% for the year to date. Notable names to beat analyst expectations were Goldman Sachs, Bank of America and Morgan Stanley, boosting sentiment across the board.
Perhaps most notable is that the VIX index, the measure of volatility which is often described as Wall Street's ‘fear gauge', registered its lowest level since July of last year. The past week certainly gave the impression that last weekend's downgrades of European nations had already been priced in to markets. To emphasise this, debt auctions in France and Spain saw encouraging levels of demand, with investors ignoring the opinions of the ratings agencies for now.
