Will 2013 be a bull year for shares?

 
NY stock exchange

Here is a bit of hocus-pocus courtesy of Jim O'Neill, chairman of Goldman Sachs Asset Management.

In his recent letter to investors he talks about the "great Almanac rule" that "if the US market is net positive after the first five days of trading [in a new year], with something like an 85% success rate since 1950 the market is not only up for the year but there is a gain of around 14% on average".

To translate, he is saying that on the basis of more than 60 years of historic market performance, if the S&P 500 index closes tonight above its opening level at the start of the year, it should be a very good year for shares - and not just US shares, because UK shares (for example) tend to follow where Wall Street leads.

Anyway, although shares were down a bit yesterday, the S&P 500 is still 2.5% above where it opened the year on Jan 2. And today is the putatively magical fifth trading day. So, on this bit of tea-leaf reading, we're off to the races so long as shares don't fall more than that 2.5% today.

Unless that is you think placing bets on the basis of the historic early-year outings of the S&P 500 is rather less rational than studying the form guide of nags in the Racing Post.

That said, Jim O'Neill isn't just any old tipster.

And as he points out, there may be other reasons to believe that big investors' love affair with bonds, especially government bonds, may be supplanted by a restored affection for equities - or to use the dreadful jargon, this may be a year of "rotation" out of debt and into shares.

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There may be reasons to believe that big investors' love affair with bonds, especially government bonds, may be supplanted by a restored affection for equities”

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To be clear, it is not that the economies of debt-mired Western nations are reviving with any great vigour. The post-crash "new normal" of something that looks a lot like endless stagnation has not been supplanted. But recent stats may show that the economic anaemia inflicting the US and much of Europe, including the UK, may be a bit less pernicious than feared - or at least no worse.

Around the globe, manufacturers, in particular, seem to be doing a bit better. That said, manufacturing is a much smaller contributor to growth in western economies than services, and services - especially domestic services such as retail in the UK - still look soft (and are likely to remain so, if healthy rebalancing from consumption to investment is sustained).

The corollary of any serious flow of money into shares would probably be less demand for the supposedly safest assets, namely the bonds of government perceived to have a de minimis default risk.

It is striking that the price of US and UK official debt has been falling - so, for example, the British government would now pay more than 2% to borrow for more than 10 years, for the first time since May.

George Osborne A share revival may not necessarily be good news for George Osborne

There is a painful paradox for George Osborne, the British chancellor, in the revival of investors' animal spirits, their optimism, which stems in large part from the perception that the risk of a eurozone fracture has diminished.

The point is that if investors began to take the view that the risk of eurozone collapse had become negligible once more - and the next great staging post in keeping this rickety thing intact will be the Italian elections - then in one important but narrow sense that would be quite bad news for him.

Because in the ugly contest of where investors squirrel their cash, highly indebted Britain would look relatively uglier, if not absolutely uglier.

And that means he would find it significantly harder and more expensive to borrow the colossal new sums he will need for many years yet.

Or to put it another way, a eurozone recovery that looked real and sustainable could actually increase the budgetary squeeze faced by the Chancellor, as his interest cost would probably rise.

Here is what you may think of as markets' bad-taste joke: if Britain were to lose its AAA credit rating in the coming weeks - which looks highly likely - that would be very embarrassing for a government that made it a badge of honour to retain the fabled AAA; but in a fiscal sense, the revival of investor confidence in Spain, Italy, Portugal, Ireland and Greece would be rather more expensive for Osborne and the Treasury.

 
Robert Peston Article written by Robert Peston Robert Peston Economics editor

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  • rate this
    0

    Comment number 72.

    Probably stocks will go up, given that virtual wealth is worth more than tangible wealth to the money men.

    The bigger and more important question is what does it mean to the rest of us who work for a living making things and serving people?

    Are rising shares just going to make it easier for private equity companies to create more unsustainable private debt undermining employment and real growth?

  • rate this
    +2

    Comment number 71.

    A bullish year for some shares, but not others. The banks should do ok, underpinned as they are by the ECB and the IMF. Defence companies may be down if Obama reins in spending. As for the High Street, I just wish i could have invested in Primark and Poundland.

  • rate this
    +1

    Comment number 70.

    @60 "You can't eat it, you can't drink it, you can't burn it"

    Burn it! Freudian slip?

    I always laugh when I read this because it shows just how ignorant people are of monetary history. What are you going to buy food or drink with? You need a representation of your wealth that can't be printed away otherwise you're back into a bartering system. The human race left that behind a long time ago.

  • rate this
    -3

    Comment number 69.

    penguin333, I'm afraid your belief that 2013 will be much worse than 2012 is no more than the same sort of guess that share pundits make.
    ----

    The Government has taken billions out of the economy, billions which oil the wheels of daily capitalism

    Interest rates are at what? 0.5%
    The only way is up, and when they go up, shares go down


    The only remote hope for shares is oil dropping to 50 bucks

  • rate this
    -6

    Comment number 68.

    Déjà vu!

    Where have I seen this before?
    Where have I seen printing & printing of currency, month after month?
    What was the consequences for that society?
    Will we see the bankers on the guillotine this time around :P

    A great little clip, light hearted & explanatory. Napoleon had it right, GOLD can and does work as sound money, still :D
    http://www.youtube.com/watch?v=U4aRuiO1OuQ

  • rate this
    +3

    Comment number 67.

    Will 2013 be a bull year for shares?

    Share dealing is endemically about bull.

    Its about inflating somethings worth/value based upon fantasy values & persuading others that this fantasy value is actually real.

    Its entirely a fictional bubble, fools gold. Might as well paint a 50g carrot gold & write 22 on it & you get 22 carrot gold,

  • rate this
    -1

    Comment number 66.

    may think we think everybody thinks they think.

  • rate this
    +8

    Comment number 65.

    One thing to consider.

    Does anyone think that if 2013 Will be a Bull year for shares is at all related to Should 2013 be a bull year for shares?

    What has fundementally changed in the world economy to support a proper bull year?
    The problem is the markets aren't driven by facts, but by emotion, prediction, fear, guesses, sepculation and rumour.

  • rate this
    0

    Comment number 64.

    63

    Much "surplus" cash will also go to paying off the private equity companies, some of the terms will need to be renegotiated at higher rates due to increased risk. This means that private equity owned companies have squeezes on costs and investment due to higher interest and lower operating profits...not every company is sitting on piles of cash, in fact would argue that relatively few are.

  • rate this
    -2

    Comment number 63.

    59 spam
    "So, in other words I am right, you are gambling that you may be a winner or loser"
    =
    You're confused. What is gambling? Risk. What is investing? Risk.
    Higher yielding dividends are more risky investments, lower yielding are seen as less risky investments. It is gambling.

    "Saying gamblers are investors is like calling a road sweeper an urban recycling engineer"
    =
    ? What are you on about?

  • rate this
    +4

    Comment number 62.

    #54 At last a sensible comment.

    Whilst I believe that 2013 is likely to be a mild bull year, mostly because large companies now have plenty of cash to either invest or return to shareholders, I would not claim that to be anything other than a personal opinion which could be massively wrong

  • rate this
    0

    Comment number 61.

    Let us look at fundamentals -
    Western Governments are mired in debt and find it very difficult to get rid of it and balance the books. To stimulate, they are printing money (QE) by the bucketload. Fiscal policy is loose, taxes are lower.
    Many good companies are flush with reserves of cash.
    Where would you rather have your assets - deposit account or the shares or bonds of good companes ?

  • rate this
    +1

    Comment number 60.

    Only humans could place such importance on something that's value is based predominantly on historical ideas on how it looks and how easy it was to mould into jewellery / coins etc.

    You can't eat it, you can't drink it, you can't burn it,you can't smoke it, but it looks nice and my neighbour is intensely covetous of mine. Says it all really.

  • rate this
    -5

    Comment number 59.

    44.Bastiat
    40 spam
    If U take £500 out of Ur bank account & buy existing shares off someone in an existing company, like Virgin, U ARE investing in the share market. U invested £500 in the hope of a return (dividend).


    So, in other words I am right, you are gambling that you may be a winner or loser

    Saying gamblers are investors is like calling a road sweeper an urban recycling engineer

  • rate this
    -7

    Comment number 58.

    The USA is going to be annihilated.

    They're in terrible condition. They can't or won't cut spending & that's the problem. They won't stop until they are forced to, through a currency crisis.

    In 4 years, Obama has increased the national debt by an astonishing extra $5.4Trillion! How they going to pay? They can't.

    All fiat currencies die, as will this.
    http://www.youtube.com/watch?v=YKWu0GoCuEc

  • rate this
    0

    Comment number 57.

    #56
    Except for short sellers that is. The constant dips then recoveries before/after bad news are what they live for, they borrow, predict it will be bad go all over the news, then make a killing afterwards when it's not so bad and all the other sheep realise the world hasn't ended. And the cycle repeats.

  • rate this
    +1

    Comment number 56.

    Nobody who basically makes a living from the stock market (analysts, brokers, media commentators) have EVER forecast that the stock market is going to fall-this is how marketing and bigging yourself up works people! The FT sells more copies when the stockmarket is rising, than when it's falling, unsurprisingly. Nobody wants to read about how much money they've lost/are going to lose.

  • rate this
    +1

    Comment number 55.

    If I had any money I'd buy gold.

    The sooner institutions stop bankrolling govts and buying their debt, the better for us all. Govt debt is only going one way.

    Unless you can find some good companies, or ones that will still be there after a financial armageddon, I'd go for gold. It's been money for 1000s of years, and will be for some while yet.

    Govt debt is only going one way

  • rate this
    +4

    Comment number 54.

    penguin333, I'm afraid your belief that 2013 will be much worse than 2012 is no more than the same sort of guess that share pundits make. You don't know what will happen any more than I do. Just to be clear on this, the vast majority of fund managers who are paid to analyse the markets didn't see the 2008 crash coming. So shares might go up, they might go down - the truth is nobody really knows.

  • rate this
    +2

    Comment number 53.

    A simplistic 85% view is not what any sensible investor would use as a basis for decision. The questions are:

    1. What caused the other 15% not to take off?
    2. Are there special conditions involved in the credit crunch?
    3. Is one of them the "fiscal cliff" deal signed in the dying seconds of 1/1/13 when the markets were closed (had they been open the market would have slumped and would now be low)

 

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