What a topsy turvey ride it has been since my last column three weeks ago. Then, just when you thought it couldn’t get any worse – it didn’t.
The wild gyrations in the FTSE 100 index give a false picture of turbulence and uncertainty. The simple fact is that the stock market has been moving sideways for more than a year now and the floor of 6,200 points has held twice in the past three months.
Encouragingly, the Footsie recovered spectacularly when it slipped below 6,400 points this week. Less encouraging is the fact that the two rallies at the tail end of 2014 both petered out well short of the ceiling established just above 6,800 points.
The index has averaged around 6,600 points since the start of 2014, not far from where it stands now.
There is a familiar pattern of shares moving heavily in one direction one day and swinging in the opposite direction a day later. This pattern has been particularly noticeable among supermarkets, with Tesco (TSCO), Sainsbury (SBRY) and Morrison (MRW) moving up and down in tandem.
It is important in these circumstances to look for buying opportunities on the falls but not to chase the shares on the upswings. It is also important to remember that investing in shares is not just about capital gains.
Several companies including Sainsbury paid dividends around year end. I notice that I now have just over £1,000 in my ISA account, all from dividends – I invested my full ISA allowance early in the financial year and am already getting the rewards.
The world is admittedly still a dangerous place, as economic figures this week confirm. Inflation figures in China suggest that the world’s second largest economy is still sluggish but it is nonetheless continuing to grow. Across the waters, Abenomics has done little if anything for stagnant Japan.
Nearer home, the Eurozone is declining into deflation, though that worries me less than it does many commentators. The big price fall is the cost of fuel, which on the whole has a benign influence on output.
There is a limit to how much spending people can put off in the hope of buying more cheaply some time in the future and we have lived quite happily with hefty price falls in high-tech goods over the past three decades.
Of more concern is that Germany and France, the two biggest European economies, are stuttering. While the Eurozone remains our largest market we will continue to run up a trade deficit. The need to look for markets elsewhere was never greater.
All in all, we should greet the New Year with cautious optimism, which was my advice at the same stage of 2014. We didn’t get a new FTSE 100 record as I had hoped but we did get a decent year for investors in which dividends easily outstripped modest share price losses. We stand a good chance of a new London stock market high this year. It has to come eventually.
Food for Thought at M&S
There is something about Marks and Spencer (MKS) that defies explanation. While supermarkets stagger into another damaging price war, the more expensive offering at M&S is gobbled up even more greedily. Yet general merchandise continues to suffer.
The autumn/winter clothing range was, according to chief executive Marc Bolland, well received – but not so well that customers were prepared to buy it during the warmer autumnal weather. Overall, group sales are down again.
What is really alarming is the drop in online sales which have to a large extent in the past accounted for the fall in store sales. Surely M&S has not reached saturation point on line. If it has, the outlook is bleak.
The shares offer a yield of about 3.7%, which isn’t too bad but it’s not spectacular either for a company facing such an uncertain future.