FTSE hits new 2021 high

“Anyone who gets excited by charts should note that the FTSE 100 has seen a breakout and is now trading at a higher level than any of its closing prices year-to-date,” says Russ Mould, Investment Director at AJ Bell.

“At 7,240, the index is up 10.2% so far this year which is good in relative terms to what equities have produced historically. Let’s also remember that the FTSE 100 is only up 3% over the past five years, so a double-digit gain in 2021 is a reason to celebrate.

“The UK index is now trading at its highest level since February 2020, albeit still not quite at the level seen before the global market crash that month.

“To put those figures into context, the S&P 500 is up 19.9% so far this year and had clawed back all the lost territory from the global market crash by August 2020. Since then it had raced ahead as investors have regained confidence and loaded up on equities in a world that still fails to deliver a decent return on cash.

“The best performing stocks on the FTSE 100 this year are gambling group Entain (+84% thanks to takeover interest and strong trading), construction equipment rental business Ashtead (+70%, a benefit of economic growth and a likely beneficiary of plans for big infrastructure spending in the US), and Glencore (+67%, riding high from the surge in commodity prices).

“It is interesting to see markets continue to press ahead despite the whirlwind of pressures from supply chain disruption, higher energy prices, rising wages and the threat of rising interest rates.

“Investors seem to be taking the view that central bank monetary stimulus will remain in play and that we aren’t going to be punished by sharp inflation for a long time and interest rates reaching punchy levels.

“Yes, the cost of living has gone up, but rates are coming from such a low base than it would take a very overheated economy to warrant central banks putting the cost of borrowing at such a level that becomes uncomfortable.

“Equally, investors might actually be too complacent. It wouldn’t take much to cause a shock across markets and equity valuations are looking very rich in many places. Bad news and high ratings tend to result in sharp share price declines.

“For now, strong results from banks, a decline in new jobless claims and lower than expected producer price inflation all from the US have served to put investors in a more positive mood.

“Next week looks more testing for markets as China is scheduled to produce data on economic growth which may disappoint.

“On the UK market on Friday, miners led the charge, followed by oil producers.

“International Consolidated Airlines enjoyed a 2.8% lift, with fellow airlines EasyJet, Jet2 and Wizz Air also rising, following clarity from the UK Government on relaxing some of the rules for travelers around testing, with anyone returning to England able to take cheaper lateral flow tests from 24 October.

“That could lead to a rush of last-minute bookings for half-term travel, thereby benefiting airline earnings. The sector needs all the help it can get as it is one of the last industries still waiting to play catch-up with earnings following the pandemic.”

These articles are for information purposes only and are not a personal recommendation or advice.