The Motley Fool

Will the FTSE 100 continue to climb in 2022?

Scene depicting the City of London, home of the FTSE 100
Image source: Getty Images.

2021 has been another year defined by the pandemic. However, things have been brighter than 2020, with the FTSE 100 (LSE: UKX) index rising just under 11% year-to-date and year-on-year. As the UK continues to return to normality in fits and starts, the economy should keep growing. In addition to this, as my fellow Fool Rupert Hargreaves points out, 70% of the index’s profits are generated outside of the UK. This makes it a great opportunity to capitalise on both the domestic and global economic recovery.

Variant threats

The index recently saw one of its biggest daily drops. On 25 November, news of the Omicron variant drove the index 3.6% lower by the end of the day. The reason for this is the effects the pandemic has had on the global economy and could have again if the health crisis worsens. Lockdowns, supply shortages, and travel restrictions are just some of the challenges that Covid-19 has inflicted. These factors impinge on almost all businesses in one way or another. Subsequent reports have suggested that the Omicron variant isn’t as dangerous as first expected. However, its presence still highlights the ongoing threat that the virus poses. I think it’s safe to say that ongoing virus threats will hamper the FTSE’s growth throughout 2022 in one way or another. It just depends on how serious these threats are.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. And if you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio.

Click here to claim your free copy now!

Another problem that I see affecting the FTSE 100 is inflation. Recent data highlight that prices have risen 4.2% in the UK and 6.2% in the US over the past year. In order to tackle this, central banks across the globe are deciding whether to increase interest rates. We’ve already seen the US Federal reserve try to combat inflation by tapering its government asset purchases, decreasing the amount of money in the economy. However, this doesn’t seem to be slowing inflation down, and therefore many investors are expecting a rise in interest rates.

To explain why this is bad for the FTSE 100, let’s use some basic economic theory. When interest rates are low, people invest because they can achieve a higher return than if they just let their money grow using interest. It’s also cheaper to raise debts and use these to invest with.  However, as rates rise, the opposite occurs. Some people turn away from investing in equities as they can achieve a similar return from interest on bonds and savings accounts. It also decreases the likelihood of investment as people have to pay more on loans.

FTSE 100 positives

Risks aside, I think the FTSE 100 still offers the safest way to capitalise on the economic recovery of 2022. A key reason for this is the fact that it offers such a diversified investment. Access to a broad range of sectors means that if any sectors underperform, they may be offset by others that are better performers. In addition to this, it allows investors access to all dividend-paying stocks in the FTSE 100. This is a great move to generate passive income for a portfolio.

Yet at present, I’m sceptical of how the FTSE 100 may perform in the next few months and throughout 2022. For me, its progress is heavily reliant on interest rates and how the pandemic impacts the world moving forward. I’m not convinced it can repeat 2021’s impressive growth in 2022. I would therefore hold back from adding a FTSE 100 investment to my portfolio today. 

FREE REPORT: Why this £5 stock could be set to surge

Are you on the lookout for UK growth stocks?

If so, get this FREE no-strings report now.

While it’s available: you'll discover what we think is a top growth stock for the decade ahead.

And the performance of this company really is stunning.

In 2019, it returned £150million to shareholders through buybacks and dividends.

We believe its financial position is about as solid as anything we’ve seen.

  • Since 2016, annual revenues increased 31%
  • In March 2020, one of its senior directors LOADED UP on 25,000 shares – a position worth £90,259
  • Operating cash flow is up 47%. (Even its operating margins are rising every year!)

Quite simply, we believe it’s a fantastic Foolish growth pick.

What’s more, it deserves your attention today.

So please don’t wait another moment.

Get the full details on this £5 stock now – while your report is free.

Dylan Hood has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.