The FTSE Could Hit 8,000 in 2020

The Week: Despite concerns over Brexit and Trump, Morningstar columnist Rodney Hobson is optimistic about the stock market's prospects for the year 

Rodney Hobson 10 January, 2020 | 9:18AM

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I have in the past been challenged by a fellow investor on Twitter because I don’t comment on stockmarket announcements before the market opens for trading. Rather, I wait to see the market’s reaction and that is a perfectly legitimate tactic.

Good for Greggs

If the reaction is wrong or overdone, it creates a buying or selling opportunity. Spotting those opportunities is more lucrative than trying to dash in at the opening bell.

So it was with Greggs (GRG) after its latest trading update. Total sales rose 13.5% in the 52 weeks to 28 December compared with 7.2% in 2018. Like-for-like sales in company-owned shops were 9.2% ahead against 2.9% in the previous year. Pretty impressive, and profits will be slightly ahead of expectations.

Yet the shares fell 2.2% in early trading. Perhaps some investors were worried that growth in the final quarter was slightly lower than earlier in the year. It was still a strong finish to the period so I took advantage of the drop to top up my holding, which was 40% up on the purchase price. The new batch of shares was already ahead when Greggs closed the day 1.3% up on the previous close.

The success of the vegan sausage rolls has been well documented, not least in this column. Now comes the vegan steak bake and the vegan doughnut. Equally important, Greggs is spending £7 million rewarding its staff for a highly successful year. Quite right. We shareholders have done well enough out of the success story with more to come. The people who make the money are entitled to their share. No wonder this company is prospering.

Messy for Marks

As quarterly updates from Marks & Spencer (MKS) go, the latest one wasn’t too bad. Like-for-like sales in the UK actually edged 0.2% higher and fears that the food side was running out of steam proved unfounded, although clothing and homewares again disappointed.
Chief executive Steve Rowe points to “one-off factors” holding the retailer back but M&S seems to confirm the cynical view that in company results it is the non-recurring items that keep recurring.

The shares slumped 10% to fall below 200p. That looked a bit of an overreaction but when, unlike Greggs, M&S has a propensity for continued disappointment you can understand why investors are cautious. The shares bottomed last year at 165p. They could reach that level again this year.

Future for Footsie

Two years ago I forecast that the FTSE 100 would hit 8,000 points before the year was out. It didn’t. Last January I repeated the forecast. It was a better year, but the index still fell well short. The year has started at around 7,600 points. Surely another 400 points is not too much to ask?

There is the small matter of Brexit to sort out, although I believe that a tight deadline will concentrate minds and that a deal can be done by year end. It was only when the deadline loomed for a transition deal that real progress was made. Why mess around for two years when you can do it in one?

President Trump is a far bigger and far less quantifiable threat, as he has demonstrated this week. Global growth is fragile and the leader of the world’s largest economy can do a lot of damage, especially in the Middle East where a fair chunk of oil comes from.

Even so, I like to tackle investing in a spirit of optimism. If the world comes to an end, it doesn’t greatly matter where we put our money. If it keeps going, we need to make the most of what we have got. Once again, after a gap of 11 years, gold is back in favour but it does not itself produce any wealth. Equities offer the best returns over time.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

About Author

Rodney Hobson

Rodney Hobson  is a columnist for Morningstar.co.uk and author of several investing books, including The Dividend Investor and How to Build a Share Portfolio.

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