Last year, the FTSE 100 fell 14%, excluding dividends. This performance made the UK’s leading blue-chip index one of the world’s worst-performing major stock indices.
However, I’m optimistic this trend won’t repeat itself in 2021. Today, I’m going to explain why.
FTSE 100 recovery
There are a couple of reasons why I think the FTSE 100 will do well in 2021. Last year, the index was nobbled by several factors. The uncertainty of Brexit, the global pandemic and general economic uncertainty all weighed on the index’s performance.
Heading into 2021, at least one of these factors is now out of the way. Brexit has occurred, and a trade deal’s in place. While there’ll undoubtedly be some further challenges related to Brexit that companies may have to work around in the next few years, the threat of a possible no-deal has been removed. That’s the most important thing.
Unfortunately, I think the pandemic will continue to impact the outlook for stocks for some time. Although there are reasons to be cheerful. The financial fallout has been nowhere near as bad as expected. Most large UK banks now have more substantial balance sheets than this time last year, due to dividend bans.
What’s more, government’s around the world are ramping up spending to try and recover from the crisis. This spending is already having a considerable positive impact on commodity prices.
Many of the FTSE 100’s constituents are based in the financial and resource sectors. This held the index back last year as investors deserted these sectors. However, thanks to the tailwinds I’ve highlighted above, I reckon companies in these sectors could see renewed investor interest in 2021. That bodes well for the FTSE 100’s outlook in 2021, in my opinion.
Three predictions
Based on the above, I have three predictions for the FTSE 100 in 2021. First of all, I think the index will register a robust positive performance this year as the clouds of Brexit uncertainty lift.
Secondly, I’m optimistic banks will reintroduce dividends, leading to renewed investor interest in the sector.
And thirdly, I think we’ll see more technology stocks enter the UK’s leading index. Many tech companies have benefited in the pandemic, and several large so-called unicorns are planning IPOs in 2021.
London has been working to attract these businesses, and initial indications suggest this public-relations drive has worked. Cambridge- and San Francisco-based cybersecurity company Darktrace and fast-food delivery firm Deliveroo are planning to list in London this year.
With valuations of more than £2bn, both could quickly enter the FTSE 100. And if they do, the listings may prove to be yet another catalyst that helps drive the blue-chip index higher this year.
Based on these predictions, I think now could be a great time to buy the FTSE 100 while it continues to trade as a low level ahead of a strong positive performance over the next 12 months.
