Finally… 7,000 points is here! Of course, just because the FTSE 100 has passed the 7,000 points mark for the first time does not mean that all investors are suddenly much wealthier. However, it does mean that the UK’s leading index is now in unchartered territory, having never surpassed this level before, and it could usher in a new era for shares.
Psychological Change
Clearly, the challenges facing the global economy have not gone away. There is still considerable tension regarding the situation in Ukraine, the Eurozone continues to provide a major drag on global economic growth, China is maintaining its so-called ‘soft landing’, and challenges in the Middle East remain. However, 7,000 points is a game changer for investors, because it shows that the FTSE 100 is no longer stuck in a trading range that has lasted for around fifteen years, but rather is on the brink of a period that could prove to be much more prosperous for investors.
For example, shares have often been viewed as rather risky and lacking considerable capital growth in the UK. That’s a key reason why in the UK, unlike in the US, many investors choose to buy property instead of shares. After all, the rise in property values since the turn of the century has been quite exceptional, while shares are only slightly higher than they were prior to the bursting of the tech bubble.
Furthermore, bonds have been viewed as much more appealing to investors in recent years, with the ‘great rotation’ from bonds to shares yet to dramatically take effect. Now, though, the FTSE 100 is delivering capital gains – and has done consistently since 2009 – and this could cause investors to back shares over other asset classes, thereby providing a boost in sentiment for the FTSE 100 over the medium term.
General Election/ISAs
One potential brake on the FTSE 100 during the next few months is the General Election. A change in government could cause investor sentiment to wane, as new policies and the uncertainty that goes with any new Prime Minister takes hold. However, ISA season is just around the corner and this could counter the uncertainty of the upcoming General Election and mean that more capital enters the stock market in April and May – especially with the FTSE 100 grabbing the headlines and many investors still tending to become more interested in buying shares the higher they go.
8,000 Points
Clearly, 8,000 points is a very achievable target for the FTSE 100 this year, with company earnings, economic data and investor sentiment all on the rise. It will probably need the incumbent Prime Minister to remain in place, a lack of interest rate rise in the UK, as well as no major Geopolitical events that hurt investor sentiment to take place. But, for investors in the UK stock market, the future looks very bright and the disappointment that has been a feature of holding shares over the last fifteen years may fade into a rather distant memory over the medium to long term.
