The FTSE 100 has reached new record highs as it moves in the direction of a new key milestone.
Following the Royal Wedding celebrations at the weekend and continued warm and sunny weather across the UK, personal investors had further reasons to join the party on Monday as the FTSE 100 hit record highs.
Having set a new record closing high on Friday 18 May the FTSE 100 has powered on as markets opened this morning and set further new intra-day trading highs and looks set to close at another record high on Monday.
When I set out my predictions for 2018 I indicated that we would likely see the return of volatility but that the market would also likely pass 8,000 at some point this year. These new highs take the market ever closer to that landmark level.
The key drivers for this recent rally in share prices have been continued global economic growth and accommodative monetary policy. This has been helped in the UK by the fact that weak growth in the first quarter of 2018, largely believed to be a result of particularly bad weather rather than anything more fundamental, has delayed the next rise in interest rates. This has meant the accommodative monetary policy is continuing at current levels for slightly longer than had been anticipated. Sterling has fallen as a result and overseas earnings have become worth more in Sterling terms – something which is particularly important to many FTSE 100 companies which operate internationally.
At the same time the oil price has continued to climb, pushed yet higher by political tensions between the US and Iran. This is helpful to many of the oil and gas related stocks which are an important constituent of the FTSE 100 index. BP and Royal Dutch Shell have both seen their share prices increase by c.25% since the end of March.
Merger and acquisition activity continues to flourish, the SSE proposed merger with Npower and Sainsbury’s proposed merger with Asda being just two recent examples. Further afield, Paddy Power Betfair’s proposed merger with US company Fan Duel as US Sports Betting regulations look like being relaxed being an international example. Paddy Power Betfair’s share price has risen over 25% since the start of May despite the UK Government also announcing restrictions on fixed odds betting terminals. This continued merger and acquisition activity serves to bolster investor interest and corporate valuations.
For personal investors, especially those invested in any of the companies which have seen particularly significant share price rises, or for those invested in low cost passive funds, the recent market highs are welcome. As I predicted at the start of the year markets have been more volatile and political events and in due course interest rate rises may yet stall or derail the market from time to time. However, as long as the fundamentals relating to good company performance, driven by positive global growth and accompanied by accommodative monetary policy and strong levels of merger and acquisition activity remain, then pull backs in the market can provide buying opportunities.
Personal investors saw precisely that when the markets ‘corrected’ in February and March. At the Share Centre we saw personal investors using that pull back to buy and we executed more buy than sell trades. Anyone investing in the market, and specifically in a FTSE100 tracker, as it fell back to below 7,000 at the end of March would have seen a gain of over 10% in their portfolio in the last couple of months. Anyone who was invested in the market at the beginning of the year and saw their investments fall in value, but remained invested, has now ridden through that short term volatility and has seen their investments recover as markets have gone above the levels they were at the start of 2018.
Looking forward, following such a significant rise over the last couple of months, the market might be expected to take a pause, investors might welcome the opportunity to take some profits, and at least trade sideways and consolidate those gains for a period. I still hold to my original predications for 2018 that the market will be more volatile than it was last year and that during 2018 the FTSE 100 will break through 8,000 for the first time.
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