When the news was announced in January of this year that the UK looked set to enter a triple-dip recession, the economic outlook for 2013 appeared to be rather bleak. However, the UK’s stock market actually started out the year in its best position for two years. The New Year saw the FTSE 100 – the index of the top hundred businesses in the London Stock Exchange – reach its highest closing level since February 2011. It was also the first time that the 6000 barrier had been reached since July of the same year.
The boost to the FTSE 100 was attributed to a number of factors, including the deals made with American to help with the continued problem of a potential fiscal cliff. Despite the troubling economic news relating to the triple-dip recession and the poor performance of the service sector, the index continued to grow throughout the first week of January. Notable risers in the index were: Next, whose share prices rose by 32p following a successful Christmas; the Royal Bank of Scotland, which rose by 1.4p; and BP which climbed by 11.8p on its most successful day.
However, many analysts predicted that this high was not sustainable. At its highest, the 14-day Relative Strength Index reached a score of 72. The Relative Strength Index is used as an indicator of the state of the stock market. Potential scores range from 1-100, with 30 indicating a weak market and 70 indicating a strong market. Anything over 70 is generally regarded as being indicative of an overbought index. When it reaches momentum such as this, then investors and those involved in spread betting often anticipate a fall.
This drop did come a few days after the initial surge; an overall decrease of 0.4% was seen in the FTSE 100 over the first weekend of January. Every sector reported a loss, apart from the financial sector. In finance, there was an increase of 0.5% following the announcement by regulators that banks were going to be given an extra four years to help struggling economies. The sectors which suffered the biggest loss were energy and materials, which caused a combined drop of 12 points in the index – accounting for nearly half of the 25.26 point dropped. However, the overall drop was still not a drastic one. Only two companies – the National Grid and Centrica – dropped by more than 2%. Five stocks gained by more than 1%, so the amount of winners still outnumbered the amount of notable fallers.
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Author – Adam writes for a number of different sources and has done so for many years now with great success.
