How Much Higher Can The FTSE 100 Go?

Right now I’m looking at some of the most popular companies in the Footsie and wider market, to try and establish which direction their shares are likely to move.

However, today I’m looking at FTSE 100 (FTSEINDICIES:^FTSE) itself, to ascertain if the index will continue to rise.

And it seems as if this is the question that is on everyone’s lips, as the index bounces around its all-time high. 

However, with the bull market entering its fifth year, some analysts are starting to get worried. It is possible that the market is overstretched. 

Nevertheless, continued support from central banks around the world has buoyed markets. There is speculation that the European Central Bank will act to combat low inflation within the region, which could mean that more quantitative easing is on the cards.  The market always reacts well when free cash is dished out.  

Downbeatstock exchange

Unfortunately, despite widespread optimism across much of the market, the mining sector continues to struggle. In particular, both BHP Billiton and Rio Tinto have underperformed the FTSE 100 so far this year. It seems as if investors are worried about the effect falling iron ore prices will have on these mining giants. 

With BHP and Rio making up a significant part of the FTSE 100, until confidence comes back to the mining sector, the index could be held back. 

Vodafone, another of the FTSE 100’s largest constituents has also had a terrible year. After divesting its share of joint venture, Verizon Communications, Vodafone’s share price has gone nowhere but down, once again holding back the index’s performance.

Bright outlook

At the other end of the spectrum, the pharmaceutical sector has been buoyed by deal activity this year. Shire as well as Smith & Nephew have both outperformed the FTSE 100 by 25% on average as the two companies have been subject to plenty of takeover speculation. 

SABMiller has also become a takeover candidate. The brewing giant’s shares have outperformed the wider FTSE 100 by around 10% this year as a result. 

Supermarket wars

But it would appear that more FTSE 100 constituents have underperformed, than outperformed so far. Who can forget the dismal performances of Tesco, Sainsburys and Morrisons, which have underperformed the index by 12%, 11% and 26% respectively. 

Then there are companies like Barratt Developments, Royal Mail and GlaxoSmithKline, all of which have underperformed for different reasons. 

What does it mean?

Put all these factors together and it starts to look as if the FTSE 100 can push higher. Indeed, it would appear that the index’s recent strength can be traced back to a few key constituents, with much of the wider index being left behind.

For example, some of the FTSE’s largest constituents, such as BHP, Vodafone and GlaxoSmithKline have fallen. With a combined market cap of £170bn these three index constituents would send the FTSE 100 surging if their share prices rose at the same rate of  of the index’s best performers. 

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Rupert owns shares in Tesco and Morrisons. The Motley Fool owns shares in Tesco and Smith & Nephew, and has recommended shares in Shire, Morrisons and GlaxoSmithKline.