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Jasmine Birtles
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FTSE 100 hits all-time high: Is now a good time to invest in it?
Reading Time: 5 minutesOn Thursday 9 February, the FTSE 100 opened the day at 7,927 – an all-time high!
Given the index’s strong start to the year, can investors expect more of the same over the coming months? Or is it possible that the FTSE 100 is simply overvalued?
Let’s take a closer look and these questions and more. Scroll down for all of the info, or click on the links to head straight to a section.
What is the FTSE 100 index?
The FTSE 100 is an index consisting of the 100 biggest companies listed on the London Stock Exchange (LSE), based on market capitalisation. The index is open Monday to Friday, between the hours of 8am and 4.30pm, except during major holidays.
The FTSE 100 contains a number of well-known blue-chip companies. Here are some current big-name constituents:
- BAE Systems
- Barclays Plc
- BP Plc
- GlaxosmithKline Plc
- HSBC Holdings Plc
- ITV plc
- Legal & General Group plc
- Lloyds Banking group plc
- Rightmove plc
- Vodafone group plc
Do note FTSE 100 members can change over time. For example, firms at the bottom of the index can easily drop out. Any constituent that falls out of the 100 will be replaced by a firm from the FTSE 250 index. (The FTSE 250 is the UK’s second-largest share index consisting of the 101 – 350 biggest companies listed on the LSE).
How has the FTSE 100 performed in 2023?
Amid rising inflation and downbeat economic forecasts, last year proved to be a tough period for investors. The FTSE 100’s rose just 0.9% in 2022 – quite a way off its average return of 7.8%.
Yet, so far in 2023 at least, the index has performed very strongly. Despite the fact we’re barely six weeks into the new year, the FTSE 100 has already risen 4% since 1 January, at the time of writing.
The FTSE 100 is doing so well in fact, that on 3 February it hit 7,901 points, an all-time high. Its previous all-time high was recorded in May 2018 after the index surpassed 7,877 points, so it’s a significant milestone.
While last Friday’s rise grabbed the headlines last week, yet another all-time high was reached on the morning of Thursday 9 February. The index opened the day at 7,927 points, reaching 7,947 by 10am.
Considering the FTSE 100 fell to a low of 5,190 during the midst of the 2020 pandemic, the current value of the index – less than three years later – is impressive to say the least.
Why is the FTSE 100 rising?
The FTSE 100 and the stock market in general, will always rise and fall. It’s in its nature.
However, as the FTSE 100 has just reached an all-time high, it’s worth understanding the possible reasons behind its recent surge.
While analysing the stock market can be difficult at the best of times, there are probably two factors that can explain the FTSE 100’s recent gains.
1. interest rate rises may be coming to an end
We all know the Bank for England has been grappling with high inflation. 10 successive base rate rises in just over 12 months can attest to this.
In short, higher interest rates, and thus higher borrowing costs, is typically bad news for stocks. Higher rates can create uncertainty, and when borrowing costs go up, so does the risk in lending capital for the purposes of financing new ventures, or for projects that might lead to growth. There are other reasons too, see our article that explains in more detail how higher interest rates can impact the stock market.
Of course, interest rates are still much higher than they used to be, and borrowing costs aren’t looking like they’ll come down any time soon. However, after initial speculation that the Bank of England will continue rising interest rates throughout 2023 – it last did so on 2 February – these predictions aren’t quite as loud as they once were. In fact, many are suggesting the BoE may soon stop raising rates given there are real signs inflation is slowing.
What this all means is that investors are becoming more confident about direction of interest rates. This gives greater certainty surrounding the value of stocks.
2. improved ECONOMIC outlook
In addition to hopes that the Bank of England may hold off making further interest rates rises, the UK’s economic outlook seems to have improved since the turn of the year.
According to the National Institute of Economic and Social Research, a major research institute, there are hopes the UK may actually avoid a recession. Such a view would have been unthinkable just a few months ago, where seemingly every Tom, Dick, and Harry – including our very own Bank of England – was anticipating the UK would fall into a recession this year.
On Friday 10 February it was revealed the UK had narrowly avoided a recession between October and December 2022.
Despite the positive messages, the UK may still enter a recession in the near future of course. However, we shouldn’t disregard the fact that opinions are changing, and with that, there is now a decent chance the UK’s economic performance may not turn out to be quite as bad as first feared. The stock market is certainly taking note of this, which is partly why we’ve seen many London-listed companies experience a strong start to the year.
is now a good time to invest in the FTSE 100?
While it may go against your intuition to invest in a stock or index that’s at an all-time high, any experienced investor will tell you that ‘time in the market’ is far more important that trying to ‘time the market’. That’s because investing is much more effective if you’re in it for the long-haul.
With a long-term investing horizon, its much easier to set your focus on achieving healthy returns over many years, or even decades. In other words, even if you buy a stock or index when it’s high, over a long period of time there’s a fair chance it will continue rising.
Also, any index or stock that hits an all-time high is just as likely to rise in future as it is to fall. Don’t ever think that an all-time high is a ‘ceiling’ of some sort, it isn’t.
How can you invest in the FTSE 100?
If you want to invest in the FTSE 100 there are essentially two ways to go about it.
Firstly, you can simply buy shares in each and every member of the FTSE 100. However, this strategy could be rather expensive when you take into account fees. It may also be difficult to manage. That’s because you’d have to buy and sell shares whenever new members left and entered the index.
Because of these drawbacks, buying a FTSE 100 index-tracking fund or exchange-traded fund (ETF) is arguably the easiest way to invest in the index.
Three popular FTSE 100 ETFs include:
- iShares Core FTSE 100 UCITS ETF GBP
- HSBC FTSE 100 UCITS ETF GBP
- Vanguard FTSE 100 UCITS ETF
If you decide to invest in the FTSE 100 through an ETF or index fund, don’t forget that you can do so through a stocks and shares ISA.
Are you keen to learn about investing? If so, why not sign up to our fortnightly MoneyMagpie Investing Newsletter? It’s free and you can unsubscribe at any time.
Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice.
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