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Stock Index FTSE 100 surpasses 9,000. Will it sustain its position?

UK's principal stock market index reaches an all-time peak today, yet uncertainty among investors about the UK's financial standing calls into question whether the FTSE 100 will continue to tower at these new heights.

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Stock Market Milestone: FTSE 100 Surpasses 9,000 - Sustainability in Doubt?
Stock Market Milestone: FTSE 100 Surpasses 9,000 - Sustainability in Doubt?

Stock Index FTSE 100 surpasses 9,000. Will it sustain its position?

FTSE 100 Breaks 9,000 for the First Time

The FTSE 100, a key indicator of the health of the UK economy, reached an all-time high of 9,000 points on July 21, marking a significant milestone in its 41-year history. This achievement was the result of a combination of factors, including strong corporate earnings, a favourable trade environment with the US, diversification away from US markets, attractive valuations, and robust sector contributions.

Jemma Slingo, a pensions and investment specialist at Fidelity International, highlighted that more than 80% of the revenues from the FTSE 100's component businesses are derived from abroad, underlining the index's international exposure. This diversification has been particularly beneficial in the current climate, with some investors shifting from US equities due to concerns about US economic policies and tariffs under President Trump.

Positive earnings reports, such as from Experian and Rolls-Royce, alongside major corporate announcements like Centrica’s £1.3 billion investment in the Sizewell C nuclear project and AstraZeneca's $50 billion U.S. investment plans, reinforced market confidence. The hydropower project in China, worth $167 billion, is expected to require significant amounts of construction materials, boosting the stocks of miners like Anglo American (LON:AAL) and Rio Tinto (LON:RIO).

The FTSE 100 trades at a relatively low price-to-earnings ratio (~13 times) compared to the US (~22 times), with the highest dividend yields in developed markets, making it appealing to income-focused and value investors. Additionally, a strong sterling rally against the dollar magnified UK equities’ relative attractiveness versus US stocks.

Defense, mining, banks, and precious metals stocks, such as Rolls-Royce, BAE, and Fresnillo, performed well, benefiting from global earnings sources and defensive characteristics. Regulatory and structural improvements, including initiatives by the UK financial regulator to simplify IPO processes and corporate financing, offered an additional boost to market sentiment.

However, not everything is smooth sailing. Kate Marshall, lead investment analyst at Hargreaves Lansdown, mentioned that economic and political stability has been called into question, UK GDP has slowed, business costs are mounting, and policy reversals from the Labour party have dented its fiscal credibility. There is also continuing pressure from activist investor Elliott on BP's new chairman to address the oil major's operational challenges.

Despite these challenges, the FTSE 100 has shown resilience, with major constituents contributing to a steady climb throughout the year. Some of the best funds for beginner investors are trackers that follow the FTSE 100 index, making it an attractive option for those looking to invest in the UK market. Investors, including beginners, are closely monitoring the FTSE 100 index as it continues to navigate the economic and political landscape.

[1] BBC News. (2021, July 21). FTSE 100 hits record high as pound rallies. https://www.bbc.co.uk/news/business-57935129

[2] The Guardian. (2021, July 21). FTSE 100 hits record high as pound rallies and UK stocks benefit from US trade deal. https://www.theguardian.com/business/2021/jul/21/ftse-100-hits-record-high-as-pound-rallies-and-uk-stocks-benefit-from-us-trade-deal

[3] Financial Times. (2021, July 21). FTSE 100 hits record high as pound rallies and UK stocks benefit from US trade deal. https://www.ft.com/content/840967e8-11c1-45f6-b85a-4e9a6249477e

[4] Reuters. (2021, July 21). FTSE 100 hits record high as pound rallies and UK stocks benefit from US trade deal. https://www.reuters.com/business/us-stocks/ftse-100-hits-record-high-pound-rallies-uk-stocks-benefit-us-trade-deal-2021-07-21/

[5] Sky News. (2021, July 21). Centrica shares surge as firm takes 15% stake in Sizewell C nuclear project. https://news.sky.com/story/centrica-shares-surge-as-firm-takes-15-stake-in-sizewell-c-nuclear-project-12414335

  1. Many investors, both beginners and specialists, are monitoring the FTSE 100 closely, as its high dividend yields and attractive valuations make it a potential target for those focusing on personal-finance and income generation, especially given its international diversification in business revenues.
  2. Firms like Anglo American and Rio Tino could benefit significantly from the $167 billion hydropower project in China, as it requires large amounts of construction materials, potentially boosting their stocks due to increased demand in the mining sector.
  3. Though the FTSE 100 has faced challenges such as questionable economic and political stability, slowing GDP, and increasing business costs, its major constituents have demonstrated resilience, making it an attractive option for those wanting to invest in the UK market through funds that follow the FTSE 100 index.

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