No reason to sell, yet

What the devil's going on? A little over three months ago we were in a pickle, with the FTSE 100 heading to 5,000, or worse. However, 14 weeks and over 1,300 points later, the index made it to within one point of a record high at 7,122.

It's bonkers, right? I mean, Brexit will not end well. May might not get the better of her nemesis in Brussels, and chancellor Hammond warns that a "hard" Brexit could knock the stuffing out of UK PLC.

But what should investors do now? Keep buying because income generating equities are the only show in town? They call it TINA - there is no alternative. Or sell because equities are hideously overvalued, propped up only by increasingly ineffective central bank stimulus?

Well, until someone finds a better place to park your money, the market is unlikely to fall far. Large, dividend-paying overseas earners - the so-called bond proxies - will continue to trade on nosebleed multiples, while investors are free to plunder significant pockets of value that still exist elsewhere.

A world of riches

Revered economist and value investor Robert Shiller told me recently that, according to his cyclically-adjusted price earnings ratio (CAPE), the UK stockmarket was "cheap". He didn't think Brexit would "be so bad" either.

And, while multiples for a lot of London-listed stocks are undeniably lofty, over a quarter of FTSE 100 companies still trade on less than 14 times forward earnings. It's roughly a third for the FTSE 250 excluding investment trusts. Some are struggling for growth, true, but organic earnings will keep growing for many.

In the seven years since the financial crisis, the FTSE 100 fell just once in the final quarterLook outside the large-caps to the All-Share and AIM, and there's a world of riches for value investors. It's also the time of year equity markets typically make merry, and we couldn't have wished for a better start to this fourth quarter.

There's a divisive and potentially catastrophic US presidential election in November, so watch out. However, while a Trump White House cannot be ruled out, a Clinton win to maintain the status quo looks more likely.

History is our friend, too. In the seven years since the financial crisis, the FTSE 100 has fallen just once in the final quarter. Even in 2014, the loss was just 56 points. The FTSE All-Share was down just 1 point that year.

Confidence is justified, for now

So, confidence is justified, for now. I'm thinking the next three months. Beyond that, the risk of a market correction does increase markedly. The top 100 is now a huge play on the pound. May's promise to invoke Article 50 by April 2017 and other anti-EU rhetoric at the Tory party conference sunk sterling to a 31-year low, below $1.27. It could fall much further.

That's OK short-term, and lots of companies will receive a one-off currency windfall this year, converting money made in dollars, euros and pesos back into pounds. But currency devaluation is not effective long-term, and a sharp decline in investment and weak growth abroad rings alarm bells. Not even the PM knows what Brexit really means. The British public has placed an enormous amount of trust in May and her negotiating team.

Odds of ending 2016 above 6,899 are pretty good. Beyond that all bets are offMonetary stimulus as we know it is changing, too. We've had negative interest rates, and the Bank of Japan is already trying something different.

A Bloomberg article late Tuesday showed just how sensitive the market is on this issue. Traders didn't like hearing that European Central Bank tapering of monthly bond purchases could begin before quantitative easing ends in March.

Of course, stocks might fall further - a test of the upper trend line from the April 2015 high to last week's best, currently at 6,940, is quite possible - but the odds of ending 2016 above 6,899 (the 30 September close) remain pretty good.

Beyond that, and after the carnage of January 2016, all bets are off. Batten down the hatches.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.