In the week that Vauxhall’s future as a British car company became uncertain, it’s good to find some positive news for the economy. So I was intrigued to see this cheering post over at US stockmarket blog Seeking Alpha:
The S&P 500 has broken above its 200-day moving average this morning for the first time in 524 calendar days (359 trading days). Below is a price chart of the S&P 500 as well as a chart of its 200-day moving average spread. If the index can close above its 200-day today, technicians will treat this as a positive for the market going forward.
I wondered whether the same held true for the FTSE 100 — so I crunched the numbers (courtesy of Yahoo! Finance) and discovered that the good news also applies here in the UK.
Back to the future?
Should we trust this technical landmark? In the community of chartists — people who perform technical analysis on the stock indices to divine future trends without reference to business fundamentals — this is seen as a major green light for the markets. It confirms other positive technical indicators and promises to see a more sustained rally in equities — presumably presaging a better performance for the economy more generally.
I’m not sure.
Recent stock market highs have been delivered on the back of easy credit, rampant consumerism and global trade growth. None of those factors is coming back as strongly as they did in the late 1990s and between 2004 and 2008. Unemployment (in both the US and UK) looks like being structurally higher now for a while; and although manufacturing in the UK is no longer contracting as quickly as it was (let’s see how those Vauxhall talks go…) and house prices seem to be stabilising, these green shoots are being weighed down by some mightily doomish macro-economic forces.
For investors, then, it might still be wise to heed the old market saying “sell in May and go away” — come back to equities in the autumn. For business decision makers, not much has changed. When small-cap companies start being able to raise funds on those same public markets — or banks start lending more freely, or order books firm up, or credit insurance is more cheaply available — then we can start cheering.
