The FTSE 100 currently sits just above 5,900 points. It’s been a choppy year, with the index trading below 5,000 points in March but also above 7,000 points throughout January. So come the end of the year, will the price be well back into the 5,000’s or rally back towards 7,000?
In my opinion, we’ll trade above 6,000 points, and I think this for several reasons. Now, some of you may cry that my marker is only 100 points away from the current market. This is true, but I’m forecasting a move above this figure, not to finish exactly there. In other words, you can take my reasons to assume bullish optimism as a general theme.
Event driven
The first three reasons are driven mostly by upcoming events that we have in the calendar.
- A Trump victory – the US election is little over a month away fast approaching. In my opinion, we’ll see Trump re-elected. This should be positive for the equity markets, as the status quo will be continued. Historically, the Republicans have been more of a business-friendly party. Since the FTSE 100 is correlated to the US and Asian markets, a rally in the US could see the FTSE 100 rally too.
- Brexit – I won’t dwell on this too much, given the amount of material which has already been published! In short, a Brexit agreement should be a catalyst for a rally in the FTSE 100. Given the sensitivity we saw to Brexit over the last couple of years, the move higher could be substantial.
- COVID-19 second wave – is the second wave here already? The UK registered the highest number of daily cases last week, but the market has been fairly resilient. Given the surprise of the fist wave pulled the market down heavily, this could be an indication the FTSE 100 has already priced in a second wave. Should it prove to be lighter than expected, the market could rise to re-price this risk.
Seasonal drivers
Aside from the one-off events mentioned above, the last quarter provides some other factors that could bump the FTSE 100 higher.
- The Santa rally – traditionally, the period leading up to Christmas sees an uptick in the stock market. This is often dubbed a Santa rally, although no one knows exactly why it happens. Some put it down to fund managers closing out positions before the year-end. Others put it down to positive optimism with which investors end the year. Ultimately, it’s a strange phenomenon, but one that does appear to exist.
- Earnings – the last quarter usually sees both earnings reports and forecasts for the following year. For 2020, this will be even more important than usual. If firms show robust measures in place for 2021 to deal with the coronavirus, along with strong balance sheets, this will be a positive. Given that most firms have been able to trade in fairly normal conditions over the past few months, I think figures could beat expectations. This would help the FTSE 100 move higher as a whole.
FTSE 100 optimism
From more unique events to regular end-of-year reports, I think the FTSE 100 could perform well. As a result, I’d be looking to buy into some index constituents to benefit from this potential move. I wrote about some of the stocks I like here.
