The FTSE 100 index may have taken a bit of fall last week, but it is back. As I write, it is a hair’s breadth from touching 7,000 again. It had tumbled below this level last week and spent much of it struggling to claw its way back up.
As an investor in a number of FTSE 100 stocks, however, I am not entirely concerned about day-to-day movements. The reason is that many of these stocks are well placed to gain from the big trends that are defining 2021. These are:
#1. Reopening stocks to get a fillip
As the lockdown lifts in the UK in phases, more companies can restart in earnest. These include FTSE 100 retailers like JD Sports, Primark owner Associated British Foods, and NEXT.
In the coming months, travel and related stocks like British Airways owner International Consolidated Airlines Group, engine manufacturer Rolls-Royce, and hotel chains like InterContinental Hotels Group and Whitbread can gain more.
#2. Multiple inflation-protected stocks
As the economy gains traction, though, I concur with economists who predict that inflation could start rising enough to become a policy challenge later in the year.
But FTSE 100 stocks have an answer to this too. Industrial metals’ miners like Anglo American, BHP, Glencore, and Rio Tinto can continue to gain as commodity prices rise. Inflation might be a cost pressure on companies, but miners would likely benefit from rising prices too. As would oil biggies like BP and Royal Dutch Shell.
In fact, I reckon that the luxury brand Burberry is also likely to remain unaffected because its target customers are not as price sensitive as fast-fashion buyers may be.
#3. FTSE 100 rally to drive rotation
I doubt if inflation would be high enough to drive economic growth out, though. Forecasts for the economy are the most upbeat that I have seen in years, if not over a decade. I reckon a continued growth spurt will continue to drive the stock market rally.
As a result, high share prices in my view are unlikely to lead to a plateauing of the stock markets. Instead, they would lead to a rotation to less-loved stocks. Defensives, for instance, are out of favour as bullish investors are buying beaten down cyclicals.
But cyclicals, like many of the reopening stocks are, have also run up a lot. And at least to me, they are looking expensive in terms of price-to-earnings. It is little wonder that the FTSE 100 healthcare biggie AstraZeneca has started recovering from its low points earlier in the year. The same is true for Hikma Pharmaceuticals.
A point to note about FTSE 100 investing
While all appears gung-ho as far as the FTSE 100 is concerned for the rest of 2021, I think we always need to remember that stock market investing is not without its risks.
We do not have to look too far back for that. Just a little over an year ago, we saw the worst market crash since the financial crisis. But that does not mean that I cannot make a killing from FTSE 100 stocks this year, either. I am optimistic.
