Towards the end of the first quarter of 2006 we saw the FTSE 100 floating above and below the 6000 level without being able to consolidate due to fears of global interest rate rises. The second quarter was a rather more torrid time with the FTSE 100 being 10% below its April peak at one point, although by the end of the quarter it had recovered to be 4% ahead of where it began 2006. As the quiet summer period passed, the UK housing market showed little sign of slowing and corporate earnings continued to please. Towards the end of the year the market was dominated by merger & acquisition activity. The weak dollar also troubled share prices since many of the FTSE 100 companies have dollar denominated earnings. However, at the same time the weakened oil price proved advantageous for the manufacturing and travel sectors.
On the whole, the strength of corporate earnings and profits continued to please. The return of cash to shareholders saw some major buyback programmes and the amount of private equity capital on the sidelines, waiting to be invested, is still huge - estimated at a phenomenal £163 billion. All of this has left the market in a fairly robust shape going into the New Year and as I said above we believe 2007 has the potential for further growth.
Consumer confidence, whilst fragile, could be returning slowly, and despite some murmurings of a poor Christmas in the shops there are hopes that we may yet see a stronger Christmas performance than some analysts have been expecting. The return of M&A activity, strong corporate earnings and the previously mentioned pile of institutional cash waiting on the sidelines to be invested would all provide good reason for investors to get involved in 2007. Our estimate for the end of 2007 is that the FTSE 100 will be up at 7,000. Click on the links below to take a look at our views on a few sectors and stocks to watch.
