So, have you ever heard about TINA? This acronym stands for There Is No Alternative (TINA). It is TINA that is currently driving stocks higher.
Why is there the TINA effect?
There is a huge US stimulus package due to be signed off today, low rates, a dovish Fed (how dovish to be seen next week), and high levels of QE driving stocks higher. However, the lack of alternatives is meaning the dip keeps getting bought. That pattern is likely to continue.
More support to come?
There is talk of a further $2.5 trillion package for the US due over the next 4 years. Spend, spend spend. Great news for the short term, more questionable for the longer term, but that is Keynesian economics for you. When you hit a wall, spend your way out. I will leave the pros and cons of such an approach for others today, but in the short term, it does mean stocks should gain.
FTSE100 should gain from a buy the dip mood
The FTSE 100 is looking really good right now. Firstly, the general backdrop for the UK is more stable. Yes, there are some issues post Brexit for UK manufacturers in terms of their exports. However, the UK has finished Brexit and the rest of the EU will slowly come to terms with it. All the pent up demand for things the UK can be released as the doomsday ‘no deal Brexit’ scenario was avoided.
The UK is ahead of the curve in its vaccination program with around 1/3 of the population being vaccinated. Vaccination wise the UK is ahead of both Europe and the US, so that should mean the UK sees demand return more quickly.
Pent up savings
The UK has, like much of the developed world, pent up savings to spend. A return to normal social interaction should release that pent up demand into the economy.
The Bank of England’s Governor Bailey has noted the market’s optimism this week on improving conditions, but sounded a note of warning saying that the economy is, according to its forecasts, ‘starting at a lower level of activity’. However, as long as the UK continues with its vaccination program, and there are no major hurdles from a strong COVID-19 variant. The FTSE 100 should gain.
Have an explore of the seasonals for the FTSE 100 here. You can see that this is a great time of year for the index.
Well, it is just a case of going with the break of the recently broken trend line. Hard to get any simpler than that.
You can read about our new partners Seasonax here.