Summer Lull …?

23/07/2010 at 11:38 am 2 comments

As a brief but heavy rain shower over London heralded the true arrival of summer yesterday, our thoughts turned to the fabled Summer Lull.

This period in financial markets is supposed to begin roughly when Wimbledon starts, and finish approximately as the kids go back to school in September. The theory goes that at this time of year, senior market participants are hosted at a series of high profile sporting events before being flown off to their holiday homes and luxury hotels. Their deserted offices are not supposed to witness much in the way of interesting activity during the period. It is a halcyon season for all concerned.

That, at least, is the theory. Over the recent past the summer has proved anything but quiet.

Last year of course the thundering juggernaut of the relief rally saw the FTSE100 gain 15% across July and August. The same months in 2008 were more convincingly dull (July: down 3.8%, August: up 4.2%), but one month later Lehmans went pop and Footsie shed 13%. In June ’07 it was Bear Stearns – remember them? – and although the market reaction was muted at the time that was the signal that the subprime crisis, which had been gathering itself quietly in a specialist corner of the credit markets for a few months, really was going to shake the world.

Why the trip down memory lane? Well, the equity market recovery from the correction we saw over the spring has seen the FTSE100 rise nearly 8% month to date – the steepest monthly gain, funnily enough, since last July.

Will August see a gentle falling back, giving us overall a traditional summer non-event? Or will it be 2009 all over again?

In the latter case, as we are optimistic about the prospects for the world but cautiously so, we would humbly diagnose a case of heatstroke and position for a cooler reappraisal of market valuations once those City offices have filled up again.

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