AHALLOWEEN shocker! We are used to shocks from time to time when talking about financial markets, but it makes a pleasant change to be talking about shockingly good news.
Last Thursday saw the flash estimate of UK GDP (gross domestic product) come in at +1.0 per cent.
That is not just good, it is very good.
A month ago, I took the perilous opportunity to forecast that growth in the economy would surprise on the upside. Lo and behold, that is what we have got.
There was sufficient momentum from other economic statistics to make the claim, but the magnitude of the recovery took nearly everybody by surprise. The Chancellor of the Exchequer can feel vindicated that his plan is working.
This is despite overall Government spending still increasing, not decreasing, while attempting to address the structural deficit.
On an annualised basis, the GDP growth for the last quarter was the fastest since the debt-fuelled growth of 2006. In fact, in the boom and bust years from 1997 to 2010, there were only six quarters out of 52 where quarterly growth was at the same level. From January 2008 to May 2010, the UK economy shrank by five per cent.
Since May 2010, it has gained 1.9 per cent.
It is no great coincidence that through these times, bank deleveraging has been a big factor in this, which is heading towards its end, unless the Bank of England throws a spanner in the works.
There are some who appear unhappy that the country has come out of recession and would like to point towards the Olympics as a reason for the turnaround in growth.
The Office for National Statistics, the independent body collating the figures, attributes only 0.2 per cent of the 1.0 per cent to the Games.
Foreign Olympics visitors only accounted for 0.06 per cent of this.
The correlation effect that I explained a month ago has seen the FTSE 100 rise by a further one per cent from the end of September. Again, the best-performing areas have been recovery, growth and cyclical.
If the economic cyclical is one of recovery and growth, then it should be no surprise that these areas with positive correlation have provided the best performance. This all means that a passive investment strategy, while producing acceptable returns this year, has not kept pace with a strategy of actively pursuing growth and recovery over defensive sectors.
They say that football is a game of two halves. In the world of investment, it is more like American football and a game of four quarters is a more appropriate analogy.
The first quarter of this year was mired in doom and gloom, with the economy heading into recession.
Despite this, growth and recovery stocks fared best.
With the second quarter showing no real respite, defensive sectors were the better performers.
This reversed in dramatic style in a more optimistic third quarter, where growth and recovery sectors have been stunning performers.
Who would have thought at the start of the year that 2012 would so far prove to be one of the better years for investment returns?
As far as the FTSE 100 goes as a measure of returns, we are looking at about eight per cent in terms of capital and income as a total return.
How does that compare to cash deposit returns?