3 February 2023
If you are covering the news that the FTSE 100 has reached a record high, please see the following comment from Marcus Brookes, chief investment officer at Quilter Investors:
"The FTSE 100 has reached a record high, despite gloomy economic warnings hitting headlines. The new high is thanks to a combination of factors that have come together to boost the index. One of the key drivers has been the fact the FTSE 100 is partly made up of legacy energy providers and miners, who benefitted greatly from the spike in inflation and the energy crisis that hit following the outbreak of the Russia-Ukraine war. This sheltered the index far more than some of its technology biased peers, such as the S&P 500 in the US, and saw it hold up in the face of tough economic conditions.
"Thankfully for many, this energy crisis not biting as hard as was first feared. This has allowed the UK economy to hold up slightly better than expected, as it grew 0.1% according to last week's figures, which in turn has provided a tailwind for the FTSE 100.
"Another major factor in the FTSE 100's recent performance has been the reopening of China following its relaxation of its zero Covid strategy. This has led to increased demand for several component stocks, which has helped to push the index higher. While playing a small role, the UK has also enjoyed greater political stability following the mini budget fallout, this may only be a minor contributing factor to the FTSE 100's recent performance.
"Although record-breaking highs can be cause for celebration, investors shouldn't put too much emphasis on records like this. It is very difficult to time the market, and it's always best to simply have a long-term strategy rather than one that reacts to market movements on a day-by-day basis. Furthermore, as the economic mood brightens and long-term trends continue to play out, the fossil fuel giants of the FTSE 100 may find themselves missing out on that rebound, and thus the wider index could struggle.
"With chance of a recession on the horizon, the index may still have some significant volatility in store for investors. The FTSE 100, like many stock market indices, tends to perform poorly during a recession. This is because during a recession, economic activity slows down, and companies tend to see a decline in profits. This can lead to a decrease in stock prices, and in turn, a decline in the value of the FTSE 100.
"It's worth noting that the FTSE 100 is a market-capitalisation weighted index, which means that the largest companies in the index have a greater impact on its performance. Therefore, during a recession, the FTSE 100 may be affected more by the performance of large global companies rather than UK-focused ones. Recessions are often followed by economic recoveries, and the FTSE 100 tends to perform well during these periods of growth. For example, after the 2008-2009 recession, the FTSE 100 recovered and reached new highs."
