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Market View

Market View: December


Welcome to this month's Market View, where we take a look at last month's market action.

“If Santa Claus should fail to call; bears may come to Broad & Wall.”  (US stockmarket proverb)

We’re shaping up for a flat 2015, but ‘flat’ in the sense of ‘no overall profit or loss’ instead of ‘calm markets’. We’ve seen plenty of up and down movement: strong gains up to April, nasty falls up to mid-August, and then a moderate autumn rally sufficient to leave us back- more or less- where we started on January 1st.

November did little to change that. None of the major asset classes, and so none of our portfolios, moved very much over the month. This is surprising, because there were several news events which might have given markets direction on another day.

The Friday 13th attacks in Paris were shocking in their brutality, and on the following Monday market watchers were comparing the massacre to the events of September 11th 2001 in the USA and July 7th 2005 in London. Seven days later, Turkish forces shot down a Russian fighter. This was the first engagement of its type between Russia and a NATO member since the 1950s. Either or both of these events could one day be told as ‘chapter one’ in a new global conflict. But their true geopolitical impact will take years to emerge. Parliament looks set to vote on extending British air strikes against ISIS into Syrian territory during December, and Russia-for now- seems content to respond to Turkey only with economic sanctions.

November also brought the UK’s annual Autumn Statement and spending review. Commentary beforehand focused on where the fiscal axe would fall. The tone of the Chancellor’s statement, however, was benevolent. Budgets went up for the NHS and defence, were protected for education and the Police, and the basic state pension saw its biggest real-terms increase in 15 years. And yet a budget surplus of £10bn is still forecast for 2019-2020. How? The key to the maths is the economic growth targets agreed on by the Office for Budget Responsibility: the UK needs to grow at around 2.4% for the next five years or, all else equal, the plan will fail.

So it’s been an eventful year in the news and yet a disappointing one for investors. Few will have gained or lost much. Look out for some market action in the final five trading days of the year. Gains in this period (called ‘Santa Claus rallies’ since the term was invented in 1972) happen more often than chance would allow*, and they often bode well for the year to come.

*according to research published in the 2015 Stock Traders’ Almanac

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