The FTSE 100 reached 6,000 points for the first time in April 1998. At the time, this wasn’t seen as a particularly major event. After all, it had taken just eight months to rise from 5,000 points to 6,000, so the feeling among most investors was that 7,000 points wouldn’t be too far away.
However, it took 17 years to rise by a further 1,000 points, not reaching 7,000 until April 2015. What went wrong? In the intervening years we had the bursting of the dotcom bubble, 9/11, the credit crunch and more recently, the commodities crisis.
So looking ahead, will it take the index a further 15 years (to make 17 in total) before it reaches 8,000? Or will it come much sooner than 2032?
Investor sentiment
One of the most fascinating things about the stock market it how wrong investor sentiment can be. For example, in 1998 there was a general feeling of optimism. It was almost the end of the millennium and the internet promised so much. Despite the panic over potential Y2K problems (remember that?), there was a real feeling that a new economy would emerge and change all the rules, with huge profit potential ahead for all investors brave enough to buy-in. Yet things clearly didn’t turn out that way, and investing in April 1998 would have meant a hugely painful and disappointing period.
Today, investor sentiment is also relatively bullish. In the US and the UK, the main indices have reached record highs in 2017 and many investors, including Warren Buffett, are feeling optimistic about the future. While in the long run they’re likely to be proved right, in the short term there could be a number of challenges that prevent the stock market from hitting new highs.
Uncertain times
One key risk facing investors is President Donald Trump. Whether you love him or loathe him, most people agree he’s unpredictable. This may prove to be bad news for stock markets this year, since investors tend to like certainty and re-rate stocks to high levels only when they feel confident in the outlook for the economy. With Trump in charge, there are question marks about a range of policies. Although so far it has been assumed he will deliver economic growth, this is by no means guaranteed.
Another major risk facing investors is Brexit. Nobody knows how negotiations will turn out, but a hard Brexit seems relatively likely judging from comments made by both sides. The prospects for the UK without the EU and the EU without the UK are unknowns in the modern era, and uncertainty could spike over the next couple of years as the UK goes it alone. While this may be a good thing in the long run, it’s unlikely to convince investors of the need to pile into risky assets such as shares in the short run.
Takeaway
The FTSE 100 seems unlikely to hit 8,000 points in the coming months. The uncertainty of Brexit and Trump seem likely to weigh on investor sentiment. However, now could prove to be an excellent time to buy for the long term. Why? The challenges faced by the FTSE 100 between 1998 and 2015 are unlikely to be repeated over the next 15 years in terms of their size and scale. Therefore, while investors may have to wait a little while for 8,000 points, they may not be required to wait a full 17 years.
