If you were Rip Van Winkle waking from 12 months of slumbers to look at how UK stock markets had performed in 2011 your first reaction would be ‘So nothing much happened then?”. Although the FTSE 100 was down 5.6%, that’s not a dramatic fall in historic terms. Indeed NASDAQ was only down 1.8% and the UK FTSE SCS Index – which most closely follows the UK SITS stocks that we track - was actually UP 2.7%. Indeed in Telecommunications, the FTSE Mobile Index was up a very respectable 8.6%.
But, as I have written many times this year, the word that best sums up stock markets in 2011 is VOLATIVITY. One look at the chart below induces the kind of feeling I got when I rode the roller coaster at Universal Studios with my grandson this Christmas. Personally, in my 45 years in the IT sector, I have never witnessed so many peaks and troughs in one year. The FTSE SCS Index was riding +6% higher on the year in Feb 11 only to crash to -2.3% in March. It then recovered to hit another peak of +8.3% in July when it then crashed to -12.1% by early August. It then recovered to an even higher peak of +8.9% on Oct only to crash into negative territory again in Nov before staging an end-of-year rally to close up 2.7%.
Of course, the single most significant reason for this was the economy. In my contribution to the series - TechmarketView’s Predictions for 2012 – I made the point that the greatest effect on our sector in 2012 would be “It’s the economy, Stupid”. Actually, someone wrote their own article based on my predictions saying that this was all too obvious. Actually, it’s not. For most of the last 45 years, technology stocks have ploughed a different path to the general market. In the early 1980s, when the UK was in recession, the launch of the PC powered IT forward against the trend. Conversely, the UK had something of a boom in the early 2000 which coincided with the dot.com crash for tech stocks.
Enterprises can boost the sector in bad times by shifting IT work from in-house to outsourcing companies. Consumers can decide that an Apple iPad is a more satisfying use of their dwindling cash than a dress, a holiday or a meal out.
That’s why my prediction that the economy will have a more significant effect on IT spend than perhaps at any other time in the past, is of significance. We are in for a very tough time in 2012 and IT (both company and share performance) will clearly be more affected by this than any other factor I know.
Hold on. The roller coaster ride has not finished yet.