WHILST you will be pleased to know that there are still around 21 days of Xmas shopping to be enjoyed, the UK stock market needs only to survive a further 15 days of trading to ensure it ends the year in positive territory, writes John Pearson.

I use the word survive, as back in June when the FTSE stood some 10 per cent lower at 5260 (5810 at the time of writing), the economic impact of the long Jubilee weekend and the pending disaster that was expected to be the Olympics were both weighing heavily on market sentiment. The hope of achieving some decent gains looked a long hop, skip and a jump away.

How wrong we were; the Olympics were an outstanding success and a combination of exuberance and pent up activity held back from the previous two quarters produced economic growth of 1 per cent for the months of July through to September. Added to this has been a resurgent US economy and an absence of further European disasters, allowing the stock market to regain its poise and now standing well positioned to end the year up by around 5 per cent.

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A big factor on the side of the market finishing the year strongly is the statistical role that December plays in the market psyche. December is the market’s strongest month and in particular the last 5 trading days, a period that has produced positive returns in 14 out of the last 15 years. Over the past 40 years, 6 out of every 7 Decembers have produced positive returns for investors.

December is therefore a powerful statistic; which is the type of catalyst that is needed for the market to break out of its current narrow trading range. I have commented before that the FTSE index is being squeezed between higher lows and lower highs in a pincer movement. Assisted by low trading volumes, the feel is of a market slowly grinding to a halt around its current level of 5800.

Despite the current and apparent lethargy, there has been the usual mixture of over and under achievers this year with some interesting patterns developing. 80 per cent of the FTSE is in positive territory for the year with the best performers up by nearly 100 per cent and the worst down by around 50 per cent. The best performing stocks can be found in the Banking and Financial sectors, reflecting both their disappointments of recent years and an element of investors looking tentatively towards economic recovery. On the negative side, there is a mixture of Mining stocks, reflecting the decline in the Chinese influenced commodity super cycle, and one or two more defensive stocks, perhaps reflecting a healthier appetite for risk elsewhere from investors.

The best performers this year include Lloyds Bank, Aberdeen Asset Management, Standard Life, Barclays and Prudential. Added to the mix have been strong trading stories from the likes of Intercontinental Hotels and Whitbread and a strong recovery story at ITV. At the other extreme can be found the miners; Eurasian has suffered from its political intrigue in Africa, Anglo American from its heavy capital expenditure in Brazil whilst Tesco’s 20 year growth story has run out of steam, at least for now.

Despite the lack of economic momentum over the year as a whole, the market looks set to produce a positive return for investors assisted further by December’s seasonal cheer.

John Pearson is a Divisional Director in the Teesside office of Brewin Dolphin, and can be contacted on 01642 608855.

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