The FTSE 100 closes above 7,500! What’s next for the index?

The FTSE 100 index finally closed above 7,500 yesterday. Will we see even higher levels in 2022 or will uncertainty still hold it back?

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This was a long time in the making and it has frequently been delayed. Finally though, the FTSE 100 index managed to close above 7,500 yesterday. At its close of 7,552, it was up less than 1% from the day before, indicating now narrowly it had missed the mark in recent days. 

FTSE 100 index at 8,000?

I had forecast that it could touch this level before the end of 2021. And it did reach pretty close. But it took another few sessions to get to the actual number. Of course, the exact level says little for the value of my investments. But as someone who likes to consider the big picture, it does have some psychological significance. 

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It is now closer to pre-pandemic highs than it has ever been. And we are only at the start of 2022. I think it is quite possible now that the index could end the year at significantly higher levels than those seen even during the pre-pandemic bull market. In fact, once it was clear to me that the index would touch 7,500 sooner rather than later, I also wrote about whether it could touch 8,000 in 2022. If I was optimistic then, I am even more so now. And to know the reason, we just need to just look at the strong stock market trends seen so far this year. 

Risks to a further rise

The pandemic continues to create some uncertainty, of course. But it is clear that it is more likely to recede this year than not. We have come a long way since it started, and even with the recent upturn in coronavirus cases during the festive season, the threat to life appears to be significantly reduced. 

The bigger challenge for the FTSE 100, as I see it, is likely to be inflation. We need to look no further than the increases in crude oil prices seen over the past year to get some understanding of why prices are rising. Fuel is a cost component for all businesses, and it has second-round effects of increasing the prices of other goods and services too. Other aspects like supply chain disturbances, and a lag in production to meet post-lockdown demand also fuelled inflation over the past few months. And it is now widely believed that it might not be as transitory as was earlier hoped. 

The most likely outcome

I am optimistic about the FTSE 100 index nevertheless. This is because companies have managed to find ways around rising costs over the past year quite well. Either they have passed on costs to willing customers, hedged themselves against rising cost pressures or just been on the right side of inflation, like oil stocks, which have gained all this time. Keeping this risk in mind, though, I am inclined to consider companies’ strategies to combat inflation when buying stocks in 2022 more deeply than before. These could help me make the most of my FTSE 100 investments in 2022.

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Manika Premsingh 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.

Should you invest the value of your investment may rise or fall and your Capital is at Risk. Before investing your individual circumstances should be considered, so you should consider taking independent financial advice.

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