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Tuesday, February 5, 2013
JANUARY was certainly a good month for equity markets. Last week saw our own FTSE 100 index reach the highest level for nearly five years while across the Atlantic the Dow Jones Industrial Average topped 14,000.
Are we in a new bull market or have investors simply taken leave of their senses? There are certainly some plus points that have helped restore investor optimism.
Falling down the American fiscal cliff was avoided, the single currency zone in Europe remains intact and the flow of corporate news has proved rather more upbeat than many feared.
This week is particularly full of news, with tomorrow and Thursday producing figures from a number of leading companies, including several European banks. We will also learn if interest rates are to be moved on Thursday, when the Monetary Policy Committee of the Bank of England meets.
Markets do not move in a straight line and some profit taking could take the edge off recent euphoria, but it is worth reflecting that the Footsie is still below the level attained at the end of 1999.
The more widely based FT All Share Index actually peaked in 2007 and is closer to its all time high than the 100 share Index. Indeed, take into account dividends and it could be said to be higher than ever before.
Dividends are in fact one of the main reasons for owning ordinary shares. Good companies can raise the dividends paid to shareholders on a progressive basis, providing some protection against the eroding effects of inflation. Of course, dividends can be cut as well, as happened with the banks and BP. But when deciding where to invest, it does no harm to take the likely income into account.
: : Brian Tora is an associate with investment managers JM Finn & Co.