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Market update May 2006

By May 18, 2006No Comments
The markets have begun to wobble. Is there any cause for concern?
At time of writing the UK stockmarket has fallen about 5% from its peak. After 3 years of remarkably low volatility such a fall is long over-due and very healthy.

In our April commentary we said that “we must be close to the point of a correction, (but) should not expect any correction to be too severe (so nearer 10% than 25%)”.  If you haven’t retained the full version that we emailed, it is on the web site (go to “News” and then “Our news”).

Occasional corrections are simply part of the ebb and flow of the stockmarket.

As we analysed in April, in terms of earnings generated by companies in the FTSE 100 index, the stockmarket is actually cheaper now than at the market low point in March 2003, in other words earnings have risen faster than share prices.  So the UK stockmaket already represents fair value.  But it is not immune to global turbulence.

We can see the FTSE 100 index coming down to the 5100-5200 area (it is currently 5700), though when and how is unknown.  At that level there could be attractive buying opportunities, and we will keep in touch on that possibility.

In the meantime there is no point in trying to sell now and re-purchase at lower levels, because the scope of the falls is so relatively small, and, in our experience, even the market professionals perform poorly with attempts at this sort of market timing.

No need to panic.

Dennehy Wealth