Stocktake: US equities are a hard sell
However, indices are up 25 per cent so far this year, and market declines in December are very rare in bullish climates.
Since 1985, markets have risen on 20 occasions between January and November.
On all but two of those occasions, December turned out to be a winning month.
When gold loses its lustre
Investors’ view of gold is another matter, with a slew of analysts recently cutting their price targets.
Gold, which has already fallen 27 per cent this year and is about to suffer its first yearly decline since 2000, is “unlikely to regain its former appeal”, UBS cautioned, cutting its average price forecast for next year to $1,200 from $1,325.
Going short on gold is one of Société Générale’s main calls for 2014, predicting “more pain” for the precious metal, which has dropped to $1,225 from its all-time high above $1,900, and which SocGen sees at $1,050 by the end of 2014.
Bearish bets among hedge funds recently hit a four-month high, and last week’s ECB warning that Europe may witness a “prolonged period of low inflation” only added to bearish gold sentiment.
Price targets are a bit gimmicky, of course, but it’s hard to disagree with UBS’s warning that gold has “limited positive catalysts looking forward”.
Just as crucially there is, as Credit Suisse observed, “no doubt that gold is in a bear market”, with gold’s parabolic surge in September 2011 looking more and more like a quintessential blow-off top. Selling into rallies remains the obvious trading move.
Can Europe outperform the US next year?
European stocks last week suffered their longest losing streak in five months, with major indices in Britain, France and Italy all breaking below their 50-day moving averages.
In fact, the FTSE 100’s near 5 per cent decline since October’s peak means it now hovers around its 200-day moving average – a key support level investors use to gauge the longer-term trend. Like in the US, seasonal trends favour the bulls. The FTSE has risen in 18 of the last 20 Decembers, with outperformance tending to be concentrated in the second half of the month.
Whatever about the FTSE, bank strategists don’t seem worried about recent European declines. UBS, Credit Suisse, Deutsche Bank, Citigroup and Société Générale have all issued 2014 forecasts predicting Europe will outperform the US in 2014, driven by low valuations, ECB support and belated earnings growth.