Why I think the FTSE 100 index could touch 7,500 before year-end
There are two months to go before we call it a wrap on 2021. It has been quite a year. There has been much progress, but there have also been periods of uncertainty. Yet, at long last, the FTSE 100 index is back to pre-pandemic levels. It closed above 7,300 for the first time since February 2020 earlier this week.
What the trends say
Keeping these levels in mind, it sounds completely plausible that the index could touch 7,500 before year-end. It needs to continue growing by only 1.4% in each of the next two months to achieve this. In the last one year, the FTSE 100 index has actually grown by 1.7% on average, which is encouraging. But it can be argued that last November was an outlier. The stock market rally had just started and the index jumped 5.7% from the month before. That pushed up the average.
Keeping this in mind, I considered the FTSE 100 index’s growth only in 2021 so far. Even this shows an average growth of 1% each month. I get that this is a bit below the target growth rate required to make it to 7,500, but the detailed numbers give hope. In four of the past 10 months, the index has grown by more than 1.4%, in some cases significantly more. And in two months, it has grown by 1.3%, so it is very possible.
UK growth forecasts give hope
In fact, going by growth expectations for the UK economy presented in the budget, I am particularly hopeful of further advancements in the index. The UK economy is expected to grow by 6.5% in 2021 and 6% in 2022. Moreover, the budget itself encourages consumption spending. There has been an increase in the national minimum wage and the universal credit taper rate has been reduced as well. Both of these changes will put more money directly into the hands of people.
FTSE 100’s multinational challenge
There could be disturbances, though. A number of FTSE 100 stocks are multinationals. This means that they are impacted by factors outside of the UK economy. These include growth conditions in big economies like the US and China, the oil price rally on increased post-pandemic demand creating higher inflation, and even trends in Covid-19 cases elsewhere.
In recent months we have seen fluctuations in the index due to global conditions. For instance, China played a big role in the dip in miners’ share prices in recent months. And there are at least five big mining stocks in the FTSE 100 index — Anglo American, Evraz, Glencore, BHP, and Rio Tinto. It has also impacted luxury stocks like Burberry, and banks like HSBC.
Similarly, rising inflation has been alluded to by companies like Tesco and Mondi. Parts of Asia are witnessing a resurgence in Covid-19 cases.
My assessment for the FTSE 100
These developments could well hold the index back. But if stock market investors’ confidence is strong enough, then the impact may not be big. And the index may still touch 7,500. It would be great for growth investors like me, because it would indicate that my investments could indeed show greater returns yet.
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Manika Premsingh owns shares of Anglo American, Burberry, Evraz, Glencore and Rio Tinto. The Motley Fool UK has recommended Burberry, HSBC Holdings, and Tesco. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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