The FTSE 100 index began on 3 January 1984 with a base level of 1,000. And it reached its highest-ever closing level on 22 May 2018 at 7,877 after hitting an intra-day peak of 7,903 on the same day.
The FTSE 100 looks ahead
As we all know, the arrival of the coronavirus pandemic in early 2020 caused the index to crash. And Covid-19 has been suppressing business activity in many sectors all year. However, a wave of optimism and hope for the future has met recent vaccine development announcements. And the FTSE 100 is responding well to the news. Although, it’s taken a breather and eased back a bit today.
At the beginning of November, the index stood near 5,655 but it’s risen to around 6,340 as I write. I admit there’s a still a long way to go before it hits new highs but I reckon the big-cap index has picked up a tailwind and could travel far.
Indeed, many of the largest constituent companies have cyclical businesses that will likely recover if Covid-19 fades. I’m thinking of oil companies like Royal Dutch Shell and BP. And banks like HSBC Holdings and Lloyds Banking Group. As well as enterprises like mining company BHP, food service group Compass, and housebuilder Persimmon. I’m tempted to buy shares in all those companies right now.
Although the new vaccines probably won’t have an immediate effect on the pandemic, the stock market looks ahead. And in six or nine months from now, we could see improvements in trading for some of the UK’s battered businesses. And any further positive announcements relating to medical breakthroughs could help to drive the index higher in the meantime.
The big rotation
Indeed, the recent rotation from Covid-winning stocks into Covid-battered stocks by investors has been striking. And positioning a portfolio for economic recovery strikes me as being a good idea.
But I admit it can be hard to pull the trigger and buy shares before seeing evidence of a recovery in the underlying business. However, successful investors like Warren Buffett tend to buy stocks when they are out of favour with investors and when the business outlook is uncertain. That’s because there’s a better chance of picking up stocks selling at reasonable valuations. And buying at good-value prices can lead to decent returns when a recovery in the underlying business gains traction.
I think it’s as important as ever for me to focus on my watch list to identify opportunities in the stock market right now. After a long period of uncertainty, we are getting better general news flow now. Indeed, the US presidential race is over, the writing could be on the wall for the Covid-19 pandemic, and the tortuous Brexit negotiations will likely draw to a close soon. I think there’s a lot of potential for the FTSE 100 to exceed its previous record high, perhaps as soon as during 2021. And I don’t want to miss out by sitting on my hands now!
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Kevin Godbold has no position in any share mentioned. The Motley Fool UK has recommended Compass Group, HSBC Holdings, and Lloyds Banking Group. 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.