After dancing through the 7000 barrier in March, the FTSE 100 has failed to sustain the party spirit.
Investors who had hoped the fizz would keep flowing will have been disappointed by the subsequent lack of excitement, as markets floundered.
So why has the FTSE 100 lost its Mojo, and more importantly, when will it get it back?
Feeling Flat
Instead of celebrating hitting an all-time high the FTSE 100 has looked faintly embarrassed, like an uninvited guest wondering what it is doing in such an exalted place.
No wonder it feels awkward, given that the party has largely been fuelled by a questionable cocktail of negative interest rates and virtual money.
As I write this, a deflated index is threatening to fall below 7000 again.
15 Long Years
Yet the FTSE 100 isn’t overvalued, as it was last time it hit these heights on Millennium Eve.
Then it was trading at more than 30 times earnings, largely thanks to inflated dot.com expectations. Today it trades at roughly half that heady valuation, around 16 times earnings.
What we have lost in between is confidence. Politically and economically, the last 15 years have been sobering.
Technology crashed, the twin towers burned, wars were lost, credit was crunched, the eurozone slumped, Russia was emboldened and the Middle East burned.
Now sceptical investors are asking whether the six-year bull run is finally coming to an end. Especially with new figures showing that growth in both the US and UK is unexpectedly slowing down again.
Get Away
Summer is coming, and if there is one thing that stock markets hate, it’s the five months between May and September.
New figures from AXA Self Investor show that since 1986 the FTSE 100 has posted a total loss of -13.75% over the summer months, if you exclude dividends.
By comparison, during the seven winter months it has delivered a positive return of 185%.
No wonder the phrase “sell in May” still has currency.
This doesn’t mean you should sell in May and go away. If you keep the faith and re-invest your dividends for growth, the FTSE 100 has still given investors a positive total summer return of nearly 34% since 1986.
The index is up around 8% this year, so current aimlessness looks to me more like a pause for breath than a cause for concern.
If we do get a turbulent summer that will be a great opportunity to load up on your favourite stocks at bargain prices.
Then all you have to do is wait for winter, when the party season will hopefully be back in full swing.
