Hopes of easing geopolitical tensions and brighter prospects for the UK economy with falling inflation and possible late summer interest rate cuts has given investors and the stock market a boost.
The FTSE 100 seems to have its mojo back and has finally swept past the record closing high from February 2023.
% Growth
Mar 2019 To Mar 2020 | Mar 2020 To Mar 2021 | Mar 2021 To Mar 2022 | Mar 2022 To Mar 2023 | Mar 2023 To Mar 2024 | |
|---|---|---|---|---|---|
FTSE 100 TR | -18.39 | 21.91 | 16.08 | 5.39 | 8.38 |
What’s been boosting the FTSE 100?
Lower borrowing costs are forecast later this year after a slightly more positive economic outlook.
So, housebuilders have headed higher with hopes there’ll be stronger demand for new homes. And Ocado, Sainsbury’s, Next, Marks & Spencer and Tesco have all been lifted by hopes for better consumer conditions.
The lower pound against the dollar has also helped the index climb, because it boosts revenues for multinationals earning money overseas. The dollar was strengthened by expectations that the Federal Reserve (the US central bank) will be slower to cut rates than the Bank of England.
Brent Crude oil has also fallen back slightly as the focus turns to the prospects of weakening US demand if high interest rates linger for longer. But it hasn’t had much impact on the share prices of the energy giants.
Tensions are still simmering in the Middle East and there are ongoing concerns about the potential they could flare up again, causing fresh supply disruption.
Gold, normally considered a ‘safe haven’ asset, has slipped back slightly, given the welcome pause in hostilities between Israel and Iran. However, the precious metal is still hovering close to record highs. Copper prices have also climbed sharply over the past month, because of an unexpected tightening of supply in the industry.
These trends have helped boost the fortunes of mining stocks in recent weeks, despite some intra-day weakness.
Aerospace stocks have been pushed higher by ongoing conflicts and post-pandemic demand. Fears of a Russian victory over Ukraine have dissipated with the long-awaited passing of the $60.8bn funding deal by the US House of Representatives.
Chunks of funding are expected to be used imminently to bolster Ukraine’s air defences. The legislation also contains $26bn for Israel and $8.12bn for the Indo-Pacific, including Taiwan.
With governments strengthening their defensive capabilities, military contractors are eyeing up the potential of lucrative contracts. The expectation that military budgets will keep expanding has been reinforced by defence chiefs in Nordic countries and the UK calling for better military preparedness over the next decade.
This article isn’t personal advice. All investments rise and fall in value so you could get back less than you invest. If you’re not sure what’s right for you, ask for financial advice.
What’s been happening in the US stock market?
The FTSE 100 record highs is in stark contrast to stocks on Wall Street which have been losing ground.
The focus is switching to earnings season kick off, and tech giants have a lot to prove as growing concerns about the era of high interest rates continue.
Rising government bond yields are also putting stocks under pressure. Investors are eyeing up the potential for higher, more stable long-term returns offered by US Treasuries, given the already super-high valuations of mega tech stocks.
We don’t know how long the FTSE 100’s rally will last. The UK is still considered under-valued, and overseas companies continue to target London-listed companies for takeovers. But a fresh flare up in international tensions or economic shocks could see that risk averse sentiment taking hold again.
