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Why is the FTSE 100 rising?

Why is the FTSE 100 rising?
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In mid-April 2021, the FTSE 100 breached the 7,000-point mark for the first time since before the pandemic. Most recently, on Friday 7 May, the index surged to a 15-month high of over 7,100 points.

But what exactly is behind the FTSE 100’s recent surge? We have the answers.

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What has happened to the FTSE 100 in the last 12 months?

Stock markets around the world went into steep decline in the first part of 2020.

The FTSE 100 tracks the performance of the 100 biggest companies listed on the London Stock Exchange. It started the year at 7,542 points. The index plunged to below 5,000 points in mid-March as the scale of the Coronavirus pandemic became clear and fears about its impact on the global economy grew.

The FTSE 100 made a recovery alongside the economy later in the year after the intervention of the government and the Bank of England. However, the FTSE 100 still managed to clock its worst year on record since the 2008 financial crisis.

The FTSE’s total losses in 2020 came to 14.3%. This made it the worst performer among the world’s largest stock indexes.

In 2021, though, things are looking up. The index has been rising steadily in the last couple of months.

What is causing the FTSE 100 to rise?

Various factors have contributed to the FTSE 100’s rise to more than 7,100 points. The biggest factor appears to be greater optimism about the UK’s economic recovery.

Over the last few weeks, several financial institutions and economists have expressed that the UK economy is set for its biggest boom since the post-war period. This is on the back of a hugely successful rollout of the Covid-19 vaccine and the anticipated reopening of the country.

Indeed, growing optimism about the recovery of the UK economy has prompted British businesses to increase hiring and offer higher pay to new employees, according to Reuters.

The impact of a positive economic outlook is an increase in investor confidence. This, in turn, is driving the FTSE 100 higher. As investors become more confident about the prospects of the economy, they are increasingly willing to put their money into riskier assets like stocks and shares.

This includes the stocks and shares of FTSE 100 companies, which investors expect to profit from in 2021 as pent-up demand is unleashed into the market once the country reopens fully.

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How high could the FTSE 100 go?

That is the big question.

The FTSE 100’s all-time high is 7,903.50. It achieved this feat in 2018. We have already seen other stock indexes from around the world, including the S&P 500 and the Nasdaq Composite, recover their pandemic losses to reach new highs in the last few weeks.

Could the FTSE also hit a new all-time high in 2021? We’ll have to wait and see on that one.

The UK’s economy is not expected to recover to pre-pandemic levels until at least the second quarter of 2022.

But if the current recovery trend is sustained, and if there are no major setbacks in regards to the fight against the pandemic, there is no reason why the FTSE 100 should not continue to rise. This is certainly good news for investors.

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