Why The FTSE 100 Could Reach 8,000 Points By Year-End!

Here’s why things are on the up for the FTSE 100 (INDEXFTSE:UKX)

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

With the benefit of hindsight, Thursday’s majority victory for the Conservative party was rather obvious. After all, David Cameron was streets ahead of Ed Miliband in terms of his personal rating among voters, while the Conservatives were also seen as the more trustworthy party when it came to the economy, too. As such, a majority victory should perhaps have been the expected result – even if the polls were saying that it was neck and neck right until the last moment.

Improving Outlook

The reaction of the FTSE 100 to the result has been hugely positive, with it rising by 150 points since its close on Thursday. A key reason for this is the stability that comes with having the same government – especially one that has delivered an improving outlook for the UK economy over the last five years.

For example, in 2010 there was genuine concern that the UK could join a list of European countries for whom the future looked decidedly bleak, with a relatively high level of debt and a considerable deficit causing investors to become increasingly cautious regarding the prospects for the UK economy. However, today the UK is one of the fastest growing economies in the developed world and, while there is still some way to go before the deficit is reduced to zero, there is a clear path to achieving that objective over the course of the next parliament.

And, with the Conservatives unlikely to implement any radical policies such as a mansion tax, a tougher energy regulator or higher government spending over the next five years, the outlook for the UK economy remains relatively bright, which should provide a boost to the FTSE 100 over the medium to long term.

Relative Value

Of course, in the shorter term the FTSE 100 should also gain a boost from the erosion of the uncertainty discount that has been built in to the index’s valuation for some time. For example, while the FTSE 100 has a price to earnings (P/E) ratio of around 16, the S&P 500 has a P/E ratio of just over 21. Certainly, the US economy is performing well, as evidenced by the fact that it is considering an interest rate rise in the near future, but the FTSE 100 appears to offer excellent value for money on a relative basis, which could allow it to increase its valuation during the course of 2015 and beyond.

Looking Ahead

Clearly, moving from 7050 points to 8000 points is a major step. After all, it took the FTSE 100 around 15 years to reach 7000 points after first hitting 6000 points last century. However, it may not prove to be such a major leap this time around. That’s because the UK and global economies are on the up, with the Eurozone implementing QE and China set to provide a stimulus to its economy over the medium term.

Contrast this with the fallout from the tech bubble and 9/11 (both of which hurt the FTSE 100’s progress in the early 2000s) and it is clear that 8000 points may not prove to be so challenging for the FTSE 100. After all, it is just 13.5% from the index’s current level, with the FTSE 100 having risen by half that amount in the last six months alone.

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 assessed. Consider taking independent financial advice.

Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »

Investing Articles

Investing £5 a day could help me build a second income of £329 a month!

This Fool explains how £5 a day, or one less takeaway coffee, could help her build a monthly second income…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

2 FTSE income stocks investors should consider buying in April

Income stocks are a great way to build wealth. Our writer details two picks she believes investors should consider snapping…

Read more »

Investing Articles

What might the 5-year price chart tell us about BT shares?

Christopher Ruane considers what clues the long-term performance of BT shares might offer him about business performance and whether to…

Read more »