His comments come after the index posted its biggest weekly gain in nearly a year. The FTSE has slipped back to 5,795.73 at the time of writing, but has regained losses from last week’s 2.8 per cent fall.
It is up 7.88 per cent since the start of the year, after a tumultuous summer.
Performance of index in 2012
Source: FE Analytics
FE Alpha Manager Hargreave says the index is still trading within a range of 5,600 to 5,900.
"It’s a question of whether it’s going to break out either way," he commented.
"If there is a fiscal cliff settlement and there are no problems in Europe, a Christmas rally will take the FTSE up above 6,000."
However, the star small cap manager says the market surge depends heavily on news-flow.
"If politicians in America can get themselves together and come to a solution on the fiscal cliff, it will help markets tremendously."
"But I think the risk is on the upside rather than the downside."
Hargreave, who has been relatively bullish on the UK economy throughout 2012, says he is almost fully invested across his fund range; however, he tends to hold a bit of cash in his five crown-rated Marlborough UK Micro Cap Growth fund for liquidity purposes.
The manager is now holding 1.3 per cent in cash or cash-like stocks in the £496.6m Marlborough Special Situations and £78.7m Marlborough UK Leading Companies funds and 3.1 per cent in the £177.6m Marlborough Multi Cap Income fund.
The four crown-rated Special Situations fund has returned double that of the IMA UK Smaller Companies sector over five years, making 50.19 per cent compared with 25.15 per cent.
The FTSE All Share has returned 15.77 per cent over the period.
Performance of fund vs sector and index over 5-yrs
Source: FE Analytics
The fund’s highest weightings are to the industrials and telecom and technology sectors, with nearly 50 per cent of the portfolio allocated to the two.
It has a minimum investment of £1,000 and a total expense ratio (TER) of 1.54 per cent.