The Santa rally is making a significant impact on the markets, with the FTSE 100 index experiencing a notable surge. Over the past month, it has climbed by more than 300 points, marking an impressive 3.5 percent increase. There’s a genuine possibility that this momentum could propel the index to reach 10,000 by the end of the year.

This trend, often referred to as the Santa rally, is a common occurrence as stocks tend to rise towards the close of the year. With just a few more strong trading days, we might see this milestone achieved.

This potential leap is largely driven by the economic conditions in the United States, where a booming share market is offering a favorable influence. The significant influx of capital there means even a small diversion of investments away from U.S. tech giants can have an outsized impact on share prices in the UK.

The pattern of American dominance in the markets is clear. London’s trading often remains stable in the morning, but once Wall Street opens on a high note after lunch, it typically triggers a rise in market prices here as well.

Conversely, weak performances in the American markets can negatively affect UK share prices. However, for now, President Donald Trump appears to be playing an unlikely Santa Claus, contributing to this festive market upswing.

Of course the reverse occurs, with weak share prices in America clobbering us in the UK. But for the moment Donald Trump is playing Father Christmas – however improbable such an image might seem.

What does the future hold?: Footsie’s Santa rally shows we are increasingly a two-tier economy

So what is next? Now is the time when the various wealth managers and investment banks make their predictions for markets for the year ahead.

It is an exercise they have to do because their clients demand it, but if anyone had perfect (or even decent) vision on what would happen, they would keep it to themselves and never need to work again.

However, the thinking behind their forecasts gives a snapshot of the pressures on the world economy, and the hopes for it.

If there is a general message, it is that there will be a year of decent global growth, driven by artificial intelligence (AI) and reasonably cheap money, though the interest rate cycle will bottom out by the middle of the year.

The implication for equities is another good year. For example JP Morgan forecasts double-digit gains across major markets in both the developed and emerging world. Goldman Sachs predicts a broadening of the bull market, with gains driven by higher earnings across the board, rather than depending on a few AI giants to jack up overall returns.

There are a few more cautious views of course, but the overall average prediction is for the S&P 500 to rise by 11 per cent, down from this year’s 16 per cent, but still a very decent performance and way ahead of inflation.

There is, as always, a contrarian view. There has to be, for it takes two views to make a market.

Warren Buffett has indicated he is cautious. So too is Jamie Dimon, boss of JP Morgan.

Michael Burry, who made a fortune from getting the 2008 banking crash right – as featured in the book and film The Big Short – is warning of an AI bubble and considers Bitcoin worthless. But what I can’t find is any major financial institution, as opposed to a prominent individual, saying they think share prices will crash.

This optimism in the US is reflected in generally positive views about equities in London. Most analysts expect the Footsie to go through 10,000 in the coming weeks, and the average prediction for the end of 2026 seems to be 10,800. So not as good a performance as this year, but well ahead of inflation. This is in marked contrast to the general mood about the economy, which is dire, and understandably so.

Insofar as we can trust any of the figures, it hasn’t grown for six months and the private sector is shrinking. Any growth at all has come from higher Government spending, financed by borrowing.

So climbing share prices will be a sign that if the world economy continues to grow that will be fine for the major companies that are represented by the FTSE 100 index – most of them are selling to the world, not just to Britain.

But a solid performance by the Footsie says nothing about the deeply troubling domestic outlook, or the prospects for firms that depend on it – most of the smaller and medium-sized enterprises that employ 60 per cent of the private sector workforce.

If they continue to shed labour, as they are doing right now, this would be a social disaster as well as an economic one, as it would be especially bad for young people starting out in entry-level jobs.

So, welcome to the Santa rally – but be aware it shows we are increasingly a two-tier economy.

Fine for the big companies, not fine at all for the small.

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