Top UK companies: Every sector, every share

As difficult as it may be to comprehend how the stock market has managed to take such a barrage of bad news so well, there are some logical explanations which also offer the realistic possibility that the current bull run in equities has some way to go. The most obvious starting point lies at the door of all the major central banks, whose ultra-easy monetary policies and government bond-buying programmes remain highly supportive of the so-called 'risk on' rally in a variety of asset classes, equities included. That is understandable as investors are far more inclined to seek higher-yielding investments when central bankers are determined to drive down government bond yields to record lows. In fact, with UK 10-year gilts yielding a paltry 1.87 per cent - in effect, a negative real return after factoring in inflation - equity strategists at investment bank Citi point out that UK equities are as cheap now as they have been at any time in the past 100 years relative to UK gilts. There is significant dividend support to attract investors to equities.

But the real game-changer for equity market investors was the launch last summer of the European Central Bank (ECB)'s bond bazooka - it announced that it would purchase government bonds from the southern Mediterranean block of countries to stop the region's debt contagion spreading. This policy decision has led to a dramatic fall in secondary market yields for both Italy and Spain and, at a stroke, reduced the risk premium embedded in equity market valuations from a potential break-up of the eurozone. The ECB's decision to provide a €1 trillion (£810bn) cheap line of credit last year to the banking and financial sectors has also removed some of the liquidity risk facing the sector. In the circumstances, it's hardly a surprise that the banking sector was one of the best performers in the second of half of 2012 and, in a 'risk on' environment, it would be a brave call to expect this situation to end now. The same is true of life assurers, which have benefited from the easing of stress in the financial sector as the risk of a eurozone break-up diminished, secondary market bond yields contracted and equities rallied. On a price-to-embedded value basis, and supported by decent dividend yields, the valuations still don't look toppy.

So, with equity market volatility trending down and risk premiums falling further in the first half of 2013, investors are now concentrating on the valuations on offer rather than on capital preservation. On this score, equities are hardly overvalued. Equity strategists at JPMorgan Cazenove note that the MSCI Europe index is currently rated on 11 times 12-month forward earnings, a two point discount to a median rating for the past 25 years. UK equities appear similarly cheap on 10.5 times 2013 EPS estimates. Those forecasts look achievable when you consider that comparatives are generally soft as UK earnings fell by an average of 8 per cent in 2012, driven by weakness in the commodity sector.

True, bears will point out that profit margins are at a 70-year high and, with growth hard fought in certain sectors, margins could be set to roll over. However, that would be a massive call to make because in the 11 cycles in the US since the Second World War, there has never been a downturn before margins peaked. And given the high correlation between moves on Wall Street and the UK stock market, further upside in US equities has positive implications for our own market.

History books also point to the bull running further. As the respected stock market historian David Schwartz notes: "There were 37 years since 1960 when a bull market was running at the end of October. The UK stock market rose in the next six months 34 times. There are no guarantees... but even pessimists would have to agree this is a very strong trend."

It will not have been lost on investors, either, that the FTSE 250, which is more representative of the UK economy than the FTSE 100, has now taken out the record high of 12282 hit in May 2007. From a technical perspective, this is a bullish move and one that should see the mid caps continue to outperform the FTSE 100, whose weighting of around 30 per cent to oil and mining sectors has proved a drag. So, to help you navigate through the stock market minefield, we have once again analysed all of the 79 main sub-sectors (in 37 articles) of the FTSE 350 to highlight where best to place your money to maximise your gains this year.

FTSE 350 sector performances