The FTSE 100 index has gained over a thousand points in the last two months, following the Covid-19 vaccine success and a politically stable election result in the US, the largest country economy in the world.
These are big gains, to be sure.
But still burnt from the 2020 experience, I’m plagued by the question – can the stock market rally continue? The question gains importance because there are indeed risks to the stock market rally.
On balance though, I think the odds right now are in favour of a continued FTSE 100 increase.
Here are three reasons why:
#1. Brexit-driven stability
The UK and the EU managed to put together a free-trade deal in the nick of time. A no-deal Brexit would have started from 1 January otherwise. This would have made a chaotic beginning to 2021 if the two sides hadn’t managed to see eye-to-eye.
That threat has passed now.
And it’s showing up in investor confidence as the FTSE 100 index moves closer to 7,000. Brexit uncertainty has kept the FTSE 100 index in limbo for years. I reckon there’s a lot of pent up investor interest that will continue to drive up the UK’s stock markets from here.
It’s true that some aspects, like the financial services sector, cold do with more clarity. But for now there appear to be more positives in investor perception from the Brexit deal than not.
#2. Vaccine rollouts support FTSE 100 rally
Even though the UK is in the midst of yet another lockdown, there’s much hope. The vaccine rollout has begun. Some 1.5 million people in the UK have already been vaccinated and the number is targeted to rise to 15 million by mid-February. That would be more than 20% of the country’s population.
Both Pfizer-BioNTech and AstraZeneca-Oxford University jabs are being administered, which have high enough likelihood of bringing Covid-19 under much greater control. This hope is enough to continue driving stock markets upwards despite the emergence of the coronavirus variant.
#3. New US president
Last, the impact of the US on the global financial system is always something to bear in mind. And there’s been a lot going on there. 2020 was an exceptional year in any case. But it was perhaps even more so for the US because of the uncertainty about it’s national election results.
The election results coincided with the vaccine rollout making it near impossible to figure out how much the results drove the stock market rally. What we do know is that it probably didn’t pull back the vaccine rally either.
If there was still any sense of uncertainty, now with Biden sworn in as president, that too has passed. This can only be good for the financial markets.
In sum, I think we can agree that 2021 has better prospects than 2020; with both greater stability and increased capability to deal with what comes next.
In the spirit of what 2020 has taught, I’m going to focus on long-term investments, because who knows what happens in the short term! Here are some stocks I’m happy to buy and hold till at least 2025.
