After a 54% rise since March to 5,500, the FTSE 100 is expected to eke out a further small gain in 2010. A quarterly Reuters poll of strategists reveals an average forecast of 5,800 for the end of 2010.
But according to Graham Secker of Morgan Stanley, although the index's exposure to commodities and emerging markets (the latter comprise a fifth of revenues) suggests that profits could rise sharply, much of this is already in the price.
Valuations are not compelling with UK stocks on a 2010 p/e of 14. History also shows that the withdrawal of stimulus weighs on European markets. He expects the index to retreat to 5,000.
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Tight credit and overindebted consumers remain threats to the recovery, while the combination of a huge fiscal deficit and political uncertainty is a key challenge for Britain.
A hung parliament could trigger a bond sell-off, pushing yields higher and posing a threat to Britain's credit rating. Jeremy Batstone-Carr reckons the FTSE could retreat to 4,700. Wherever it ends up, "it's difficult to see 2010 as anything other than a struggle", says Neil Hume in the FT.
Gold was the trade of the decade
Gold has been a better bet than five other major asset classes since 2000. The chart from Bloomberg.com, which includes reinvested interest or dividends where applicable, shows that $100 invested in gold at the start of 2000 would be worth around $381 now.
Commodities and oil have also done well. But US stocks have had their worst decade on record, down almost 10%. The lesson is to buy for the long-term when assets are cheap and unfashionable, as raw materials and gold were in 2000. Equity valuations were then at record levels.
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