Market forecasters have a tendency to be wildly optimistic – in 2001 and 2002, for example, consensus predictions were for gains of around 30% more than where the FTSE actually ended the year.
But then the forecasters changed tack: in 2003 and 2004 the forecasters lowered their expectations and were nearly spot on. A year ago, the consensus view was that the FTSE would hit 4,963 by the end of 2005, an increase of 5.6% over the year. But it is currently over 5,500 – up 18% due to the rising oil price (the FTSE is heavily weighted towards oil firms) and the mergers and acquisitions boom.
So will the forecasters be closer to the mark for 2006? Probably not. “The future, like Narnia, is another land,” says William Kay in The Sunday Times. “We peer into the future with fogged-up glasses and try to make sense of what we think we can see.” Usually, we can’t make much sense of it, but that doesn’t stop everyone having a go. The current consensus for next year (according to The Sunday Times’s poll) is that the FTSE will hit 5,750, a five-year high, but a level that represents a pretty measly 3.6% gain from current levels.
Still, many forecasters are feeling a lot more bullish. Bear Stearns sees the FTSE 100 reaching 6,400 by December 2006, says Robert Watts in The Sunday Telegraph – which would mean a 15% increase from current levels, for example. This is a fiesty forecast and one that depends on global growth keeping going and on low interest rates continuing to drive takeover activity around the world. Neither of these are a given.
Market historian David Schwartz is one of the few pessimists around. He points out, also in The Sunday Times, that “during the 20th century there were 18 big bear markets in the world’s mature stockmarkets, which were followed by bounce-back rallies. No rally ran longer than 30 months. The present recovery has gone on for 32 months in Britain and 38 months in America, so it is looking very long in the tooth.” His forecast? That the UK market will end the year at just 5,200, 6% below its current levels. But investors should not be too quick to sell on the back of this forecast. This time last year, Schwartz was forecasting the FTSE to end the year at 4,400 – over 1,000 points below the real level. Forecasting is a tricky business.
Published in Stock markets
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by
Annunziata Rees-Mogg
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