Stock market rally 'to build in 2004'

Schwartz: A 12% rise for the FTSE 100 in 2004

One of the world's leading stock market experts, stock market historian David Schwartz, looks at what's in store for share prices in 2004 from a historical perspective.

What lies ahead for investors in 2004?

Two schools of thought are emerging.

Optimists hope improving economic conditions in America, the world's economic growth engine, will lift major stock markets.

Pessimists point to a weak US economic recovery to date, and are concerned that the recovery is just a temporary spurt triggered by one-off tax rebates.

They fear a return to the downturn of 2000-2003 is just around the corner.

Rebound rally

During periods of uncertainty like now, history can provide a useful objective perspective about the year ahead.

Big stock market drops, as we saw in 2000-2003, are usually followed by substantial rebound rallies. This trend has run from more than three centuries.

The current rally has potential to rise still further David Schwartz

During this period, there were 38 bear market downturns. Most of the follow-up rallies lifted shares at least 40%.

Many of the exceptions to the rule occurred in the eighteenth and nineteenth centuries.

In the last 100 years, 17 out of 18 bull runs gained more than 40%.

Shares gained 35% in the last nine months. Viewed from this perspective, the current rally has the potential to rise still further.

Long bull run

Long-term historical trends also teach us that bounce-back rallies typically run for at least 20 months.

Most run much longer.

It is a very strong trend.

During the last three centuries, thirty-five out of 38 bull runs ran for 20 months or longer.

Two of the exceptions are now very ancient history, and there has been only one exception to the rule in the last 125 years.

It is a reassuring statistic because the current rally is still less than one year old.

On balance, history hints of high profit odds for the next 12 months.

Look for the FTSE 100 to end 2004 in the area of 4,900, 12% above current levels.

The opinions expressed are those of the author and are not held by the BBC unless specifically stated. The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.