After its blistering finish to 2016, the FTSE 100 has greeted 2017 with real dash. Yesterday it posted a new all-time high, hitting 7,202 in early trading, and stands at 7,176 at time of writing. We’ve never seen these numbers before. I hope you have a head for heights.
Bull run fun
Few would have predicted this bull run a year ago when global markets were crashing on fears of a China crisis. Even fewer would have foreseen it in the immediate aftermath of the Brexit and Trump shocks. End-of-year commentators were too busy coming up with new ways of describing 2016 as the worst year in human history to spot that stock markets didn’t share their sense of gloom.
The worry, as ever, is that this isn’t sustainable. Understandable. The FTSE 100 does seem to have a serious psychological problem with the figure 7,000. It ended the last millennium at an all-time high of 6,930.20, a whisker away from that benchmark, then failed to trouble it again for 15 years.
Don’t look down
When it did finally breach 7,000, in March 2015, it couldn’t sustain it and suffered a similar attack of vertigo in October. Now it looks a little more stable, and has been given added lift by the UK economy’s ability to deliver one positive surprise after another. Yesterday, investors were celebrating buoyant manufacturing data, which hit a 30-month high on strong global demand for UK exports.
This morning, it was the turn of the construction sector, which has just posted the fourth successive monthly increase in output. The Markit/CIPS Purchasing Managers’ Index beat consensus forecasts to give a reading of 54.2 for December, up from 52.8 in November. Even the most ardent Brexiteer couldn’t have expected the UK economy to put on such a post-referendum spurt.
The Next step
Will it continue? Nobody knows. However, investors do appear to have shaken off their anxieties and are revelling in a sense of liberation. Even today’s disappointing results from retailer Next have failed to dampen spirits.
Richard Stone, chief executive of The Share Centre, has a lesson from history. He notes that the index fell in 2014 and 2015, before rising strongly last year. In the last 30 years, the stock market hasn’t posted a single year of gains with losses in the years either side, he notes, which suggests that 2017 may be another positive year. As weak sterling continues to boost the value of overseas earnings and dollar dividends, investors have another reason to be optimistic.
Don’t worry, buy shares
Stone also says the market goes in cycles, typically offering 20 years of gains then 20 years of stagnation. After the boom years of the 1980s and 1990s, we’ve endured 16 years of consolidation. The cycle may now be starting to shift, and if that’s the case, brace yourself for the FTSE at 8,000 and beyond.
As ever, the index will have to climb the wall of worry, which includes President-elect Trump, populist gains in Europe, the Chinese shadow banking market, Middle East and Russia tensions and the rising price of crude. ‘Twas ever thus. Hitting that 8,000 target this year will be a struggle, but far from impossible. The FTSE 100 only needs to rise by 11.5%. Last year it jumped around 16%, giving a total return of nearly 20%, including the 3.83% yield.
Even if it doesn’t manage 8,000 this year, it will one day. So start building your position now.