You know how the saying goes, “Day by day nothing changes, but when you look back everything is different”? When I look at the FTSE 100 index, it is a bit like that. Over the past year, on average, the London Stock Exchange’s headline index has increased by only 0.1% every day. But over the last year, it is up by more than 13%!
If it were to continue to show the same growth over the next year, by February 2023, it would be close to 8,500. And that in itself, in my view, is reason to be hopeful that the index could well touch the 8,000 mark before 2022 draws to a close. That the index would in fact touch these levels in 2022 has been said by multiple forecasters, including me, last year. My rough cut estimates put the likelihood of that happening by September this year.
Robust economic recovery
But now, I think it could happen even sooner, going by the recovery underway. The official numbers for the UK economy look encouraging, as per the latest reading, in any case. And latest survey figures endorse the recovery even further. IHS Markit’s Purchasing Managers Index (PMI) grew at the fastest pace in eight months in January, indicating rising business optimism.
As we know well, the stock markets are typically ahead of the curve. This means, that by the time the numbers for full economic recovery show up in print, they would already be priced into the the FTSE 100 index. Note that the the index is not dependent on the UK’s recovery alone. Many of the companies in the index are multi-nationals with interests across the world. But even then, there are companies from banks to builders that are deeply invested in the UK market. So the fact that the UK economy is doing well or expected to do so, is a definite positive for the index.
End of the pandemic
After almost two years of the pandemic, it appears that the expectation of robust performance could continue. We have come a long way since the first lockdowns, and now we are looking at their being removed entirely in the coming days and weeks. If all goes well, this could really prop up investor sentiment in my view, that could even result in a stock market rally. And if that happens, before we know it, the FTSE 100 index could touch 8,000.
Risks to the FTSE 100 index
We have to be cognisant of the risks from another coronavirus variant, however, which might just send us back into a lockdown. Also, inflation could spoil the party. At 5%+ rates, price rises are the big risk to investing in 2022 as far as I can see. Companies have hedged themselves by now, though, and some companies like oil producers and banks are actually gaining because of rising prices. So I think there is still a lot of room for optimism! I think we are headed towards FTSE 100 at 8,000 sooner rather than later.