13 Jan 2017
The UK stock market continued to climb the wall of fear or crawl forward in the sea of uncertainty or whatever you will in Q4. The FTSE 100 outperformed the FTSE 250 for the third time (out of four quarters) in 2016. Rising interest rates helped the UK banks index rise by 16% in the quarter. Some people think that lending margins will improve as interest rates “normalise”. Good luck to them. I will not be making that trade. Over the year as a whole the FTSE 100 rose by 13.9% having fallen by 4.8% in 2015. The FTSE 250 was up by 3.5% after +8.4% in 2015. The bond market was a bigger story in many ways with the 10 year gilt yield falling from 1.93% in December 2015 to 0.58% in August and then back up to 1.41% in December 2016. That is quite a rollercoaster dip. Many people believe (or hope) that the rise in interest rates will continue. In many ways it would be helpful if they did (to help savers rather than borrowers) but I am not convinced that it is going to happen. The trading statements that January has seen have mostly been very encouraging. Marks & Spencer actually sold more clothes. I must admit I didn’t see that coming. I was less surprised that Morrisons sold more food. That has been a slow burner for me but it has started to come good. Let me say that I bought both these shares because of their financial strength (M&S’s cash flow, Morrison’s balance sheet) on the assumption that they would have the time to sort out their retailing problems. I know next to nothing about retailing but I can see that burdensome debt must make it much harder (eg Tesco). I was also amused and pleased to see that Sainsbury is now being helped by its acquisition of Argos. That stock (Home Retail Group) was my one attempt to take a view on a retail model and I just got away with it. The post that is most often called to mind at present is Four kinds of bias from May. The selective use of facts is all...