Didn't someone predict the FTSE 100 would hit an all time high?
February 8, 2023
TPP Market Update:
Cheer up everyone, the FTSE 100 hit an all-time high last week.
We are all constantly being told about the bad news. We know that interest rates have been going up, inflation has remained persistent, and the cost-of-living crises isn’t going away just yet.
But occasionally it would be nice to hear some good news, so here we go. We believe we’ve found a few things to smile about.
The UK’s FTSE 100 hit an all-time high on Friday, as the blue-chip index dominated by multinational companies overcame the drag of a domestic economy headed for (or possibly in) recession. The FTSE added as much as 1.1 per cent on the day to trade at 7906.58, eclipsing its previous peak in May 2018, before closing at 7902.
After ending 2022 up almost 1 per cent, the best-performing developed market index in local currency terms, the FTSE 100 has risen 5.55 per cent in 2023.
The UK has in the past been dismissed for being too exposed to oil and mining groups, banks, insurers, and utilities and consumer staples, and for lacking high-growth technology stocks to rival the likes of Apple, Amazon and Alphabet. “But these vices look a little more like virtues” now that inflation and rising rates are squeezing US valuations and pushing investors towards “potential stores of value”, said Russ Mould, investment director at broker AJ Bell.
In September 2021, we at The Portfolio Platform wrote a piece on how the FTSE was undervalued given the change that would inevitably occur as interest rates rise and tech stocks drop. Please have a look: Is the FTSE currently undervalued? At this stage the FTSE was 12% lower than right now.
Shell, the Anglo-Dutch oil major that is the second-biggest company on the London Stock Exchange, gained 43 per cent last year, while HSBC, the banking heavyweight, gained 15 per cent as higher interest rates boosted its profits.
Sterling’s devaluation against the euro and the dollar since Brexit has helped, too, lifting FTSE 100 companies in sectors such as oil production and basic materials that book the bulk of their revenues overseas. The FTSE’s gains have come as global equity markets are buoyed by cooling global inflation and hopes that central banks will slow the pace of interest rate rises.
The Bank of England indicated last week that it may be close to ending its cycle of rate rises.
“I’m surprised by how strong markets are in general right now, but I get it with the UK,” said Neil Birrell, chief investment officer at Premier Miton. “There’s genuine value in the [FTSE 100], and it’s cheap.”
Having said that, trading and investing is all about timing as the long-term performance of the UK stock market remains unimpressive. The FTSE is up just 14 per cent since its dotcom era high in 1999. Since then, the value of the US S&P 500 has risen by more than two-and-a-half times.
However, the oil companies and banks that dominate the FTSE helped the UK market dodge the worst of 2022’s global equity rout, which saw the high-flying US tech sector battered by rising interest rates and dragged the S&P 500 to an almost 20 per cent decline last year. Companies with larger imported costs, along with those more exposed to local demand, have fared less well.
So, the FTSE 100 has managed to beat most other major stock markets over the last 12 months, but what other good news do we have?
How about this? Most commodities are now trading below where they were before the Russian invasion. In fact, most are below where they were before the start of 2022.
12 months ago, Russia’s military drills hadn’t yet begun.
On the 10th Feb, they were due to start 10 days of military drills called ‘Allied Resolve-2022’. The Russian Ministry of Defence made the statement: ‘The purpose of the exercise is to work out the tasks of suppressing and repelling external aggression while conducting a defensive operation, countering terrorism and protecting the interest of the Union State’.
Well, we all know what happened next.
It has been a long 12 months and the conflict is still ongoing. Not many expected it to last as long as it has, and the repercussions have been felt around the world.
Commodity prices flew, and we have all paid the price for relying on Russia for our resources. BUT, where are we now, compared to before the invasion? Many of you would be surprised to find out where commodity prices are currently trading.
Would you believe both oil and gas are actually cheaper?
Brent Crude, named after the Brent oil field in the North Sea is currently trading -8.83% below this time last year.
TTF Gas, the European benchmark is -25,42% below and UK gas is trading -20,86% below January 2022.
It’s true, inflation was already on the rise towards the end of 2021, so prices were already high, but the good news is, they have been dropping for months. In fact, UK Gas is now inline with where it was in September 2021, and if we take Covid out of the equation, oil isn’t trading that much higher than its long-term average.
This all points to normality returning.
This week, we will find out if the UK is in a technical recession. Don’t give this too much thought. If it turns out that the UK has entered a recession the world will carry on as normal.
On Friday we will get UK Q4 GDP. If the economy shrank by -0.3% in December, then we have avoided a recession so far, if it shrank 0.4% then it has started. The 0.1% isn’t going to affect anyone’s lives so don’t let the press get you down if it disappoints.
The US had two consecutive negative GDP numbers last year but denied the press a recession because at the time unemployment was near all time lows at 3.6%. The UK’s is currently 3.7%, also near all time lows.
This year it is unlikely we will see a great deal of growth, but that doesn’t mean stocks can’t go up. 2023 has started strong but this rally can’t realistically continue for too much longer. The equity markets will continue to be volatile; there will be good months and bad months, but unless it’s your job to worry about it, try not to.
At The Portfolio Platform we are revolutionising the investment world by offering trading strategies that look to make money regardless of market direction. In fact, up and down with no real gains or losses over the year is exactly what we look for, because unlike most investment portfolios, ours are built by linking them to professional traders. We have strategies that will short the market, some that will go long on a dip, and some that sit out and wait for the right moment before entering on strong buy signals.
We also offer passive strategies for long term gain. We have built trackers that will track any major index anywhere in the world, but not just 1:1, our trackers can be linked at 200%, or even 300% to enjoy double or triple the returns.
Mix active with passive and look for an absolute return over time. Why track the market when you can beat it?
To find out more please do contact us here. We look forward to helping you build an investment portfolio that works for you. Our platform was built for one reason, to make investors money.
The Portfolio Platform current positioning:
It does seem like sentiment is reversing in the global stock markets. Poor projections of earnings, low economic growth, inflation still sky high, and potentially equity markets ripe for a short term sell off?
As our readers and clients know, a high proportion of our trading teams are now positioned on the sell side of the market place. Are we about to witness the movement they've been waiting for?
Are the TPP strategies about to profit as fund managers and IFA's post negative results with their 'long only' portfolios?
Patience is a virtue in trading; waiting for a market fall can feel like an eternity, but when it happens, it can happen fast. The markets always fall faster than they climb.
If you haven’t pushed the button on your TPP portfolio yet, maybe now is the time. Economic outlook is poor, yet stocks are higher? This could be a good time to be short but only time will tell.
“TPP might just be about to revolutionise investment for the retail market.”
- London Stock Exchange 2020