It looks like the FTSE 100 index has today marked a record high, by the skin of its teeth- unless there is lurch downwards in the closing auction. The previous high of 7547.63 was reached on 26th May 2017. From Laith Khalaf, Senior Analyst – Hargreaves Lansdown
The UK stock market continues its winning streak despite concerns over economic performance and the unfolding Brexit process. The question is whether the market’s strong run means it’s fit to burst.
To that end, it’s vital to recognise that the level of the Footsie is not a measure of the value in UK stocks, seeing as it doesn’t take account of the level of earnings of companies in the index. Basing investment decisions on the level of the FTSE is therefore like deciding whether to buy something based on its price, without actually knowing what the item is.
Factoring in earnings, from where we’re sitting valuations in the UK stock market look reasonable, neither particularly cheap, nor particularly expensive. That means in the short term the stock market can turn in either direction without defying the laws of statistics.
However there are some reasons to be positive. The global economy, driven by its largest contributor the US, is picking up, with even Europe seeing a renaissance. Interest rates remain low and the UK consumer remains resilient. Meanwhile in an environment where doom and gloom pervades market sentiment, any positive surprises could go a long way to boosting stock prices.
It’s also worthwhile considering the alternatives to the stock market. Cash is still yielding next to nothing against a rising tide of inflation, while bonds offer investors low returns with quite significant risks, a far from appealing combination. Property prices aren’t cheap in anyone’s book, and buy to let is now facing significant tax headwinds. By comparison then, the stock market looks pretty attractive.
For long term investors the immediate direction of the stock market is of limited importance in any case, as what ultimately determines your wealth are the scores on the doors when you come to draw on your investment. History tells us that over a long time period, the stock market really comes into its own.’
