The UK’s leading stock market index, the FTSE 100, is back above 7,000 points for the first time since February 2020, before the pandemic. On Friday 16 April, the index climbed 50 points, to end the day on more than 7,030 points.
What can investors learn from this stunning rebound of the FTSE 100? We take a look.
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What is the FTSE 100?
The FTSE 100 is a stock market index that tracks the performance of the top 100 UK publicly listed companies by market cap.
The companies are grouped together and then their combined value is tracked. This value is sometimes quoted in points. When the index was originally launched in 1984, it was given an arbitrary starting value of 1,000 points.
So, a value of 7,000 points means that the index has grown seven times since its inception. It also means that the top 100 companies have grown by the same figure over that time period.
Among the companies that currently make up the FTSE 100 are:
- HSBC Holdings
- British American Tobacco
How has the FTSE 100 performed over the last year?
Like other stock market indices across the world, the FTSE 100 took a significant hit as a result of the pandemic. Back in late February 2020, the index was just above 7,000 points. It plummeted as soon as the pandemic struck and the country went into lockdown.
The index dipped to below 5,000 points as the pandemic wreaked havoc on the UK economy. However, government stimulus and relief measures have helped improve market and investor sentiment since then. As a result, the FTSE 100 has steadily risen back to pre-pandemic levels.
The current positive mood of the FTSE 100 has also, according to several news reports, been boosted by strong economic data from China and the US.
Breaking the 7,000-point mark means that the FTSE 100 is now 40% higher than its lowest point in March. However, it’s still more than 500 points below its level at the start of last year.
The index has also lagged behind other major indices in the world, such as the S&P 500 and the Dow Jones, which have both made stunning recoveries from the pandemic and reached new highs in recent months.
However, with the successful rollout of the Covid-19 vaccine and the expected full reopening of the country within the next two months, the FTSE 100 could see better days ahead. The index could easily catch up and maybe even outperform its international counterparts.
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What is the biggest lesson for investors?
The most important lesson that investors can take from the FTSE 100 recovery is the importance of sticking to a long-term investment strategy and avoiding knee-jerk reactions in times of crisis.
There are undoubtedly investors who saw their portfolios dwindle during the peak of the pandemic and were tempted to sell in order to avoid further losses. Clearly, that would have been a mistake.
History has shown that there will always be forces and events that cause short-term stock market swings. But, almost without fail, the stock market recovers, sometimes even setting new highs.
If you ever find yourself struggling with your emotions in the face of a crash, remember that the stock market has an upward bias in the long run, regardless of how hopeless things might appear.
If you are considering making your first foray into the world of investing, you should take a look at our investing guide for beginners.
Alternatively, if you are already knowledgeable and ready to begin investing, we have compared some of the top-rated share dealing accounts to help you narrow down your options.
Remember that investing in stocks, including the FTSE 100, is inherently risky. So, before you part with any money, make sure you’ve done your homework.
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