Why is the FTSE 100 close to record high?
A look at markets + Davos + Dorset
Hello and welcome to the latest edition of Off to Lunch…
The FTSE 100 is close to a record high. By the time you read this, it may have hit that record high, overtaking the 7,877.45 it reached in May 2018. It was at 7,856 when I sent this.
Since the turn of the year the FTSE 100 has been on a rally, gaining more than 5 per cent. You can just about see the rally on the graph above, which shows the index over the last 20 years. The graph shows two clear troughs - the financial crisis in 2008 and the start of the Covid-19 crisis in 2020 - but the general trend for the FTSE 100 has been one of steady gains.
Of course, this recent rally in the FTSE 100 does not fit with the gloom around inflation, energy bills, rising mortgage costs and the economic outlook as we entered 2023.
However, GDP figures released on Friday showed that the economy grew by 0.1 per cent in November, confounding forecasts that it would contract by 0.2 per cent and that the UK is heading for recession. These figures have boosted optimism which was already gaining traction in the City, political circles and the media that we might all have been too pessimistic about 2023. Heck, The Sunday Times even rolled out a “10 reasons to be cheerful about the economy” piece at the weekend (you can read that here). As well as the overall GDP figures looking better than expected, the piece says that other reasons to be cheerful include inflation potentially falling, robust consumer spending, shipping costs normalising and energy prices easing.
This optimism about 2023 - or at least a sense that the year might only be bad rather than very bad - has been a key driver of the FTSE 100’s gains.
The FTSE 100 is not alone in enjoying a rally. In fact, it has underperformed the Dax in Germany and the Cac in France so far in 2023, although it has done better than the S&P 500 in the US. Optimism about easing energy costs and China reopening after Covid lockdowns (thereby boosting trade) is helping markets across Europe.
Often when we talk about the FTSE 100 rising and falling it comes with a warning that it is not representative of the UK economy because so many of the constituents are multinational businesses which make most of their money overseas. However, these are the top rises in the FTSE 100 so far this year, according to data from Refinitiv:
International Consolidated Airlines Group +28 per cent
JD Sports Fashion +27 per cent
Ocado +25 per cent
Berkeley Group +19 per cent
Whitbread +18 per cent
Persimmon +17 per cent
Prudential +16 per cent
HSBC +16 per cent
Barratt Developments +15 per cent
Associated British Foods +15 per cent
And these are the worst performers:
Beazley -5 per cent
British American Tobacco -4 per cent
BAE Systems -2 per cent
SSE -2 per cent
Coca-Cola HBC -1 per cent
Pearson -1 per cent
Imperial Brands -1 per cent
Compass -1 per cent
Haleon -0.2 per cent
Admiral -0.1 per cent
As you can see from the risers, they include companies with a heavy presence - and reliance - in the UK. You have businesses set to benefit if travel and tourism holds up better than expected - IAG, the owner of British Airways, and Whitbread, owner of Premier Inn, which reported strong trading last week. You have retailers - JD Sports, Ocado and Associated British Foods, owner of Primark, although Ocado is bouncing back from a miserable 2022 on the stock market and is benefitting from overseas partnership deals. And you have housebuilders and a mortgage lender who will benefit from the housing market holding up better than expected - Berkeley, Persimmon, Barratt and HSBC. Shares in UK housebuilders are up on Monday after the latest monthly survey from Rightmove showed asking prices are up by 0.9 per cent in January compared to last month and new buyer enquiries are up by 55 per cent, more than usual at this time of year. You can read more on that here.
We will know more about the shape and outlook for the UK economy by the end of this week. We get the latest unemployment and wages figures on Tuesday, inflation figures on Wednesday - will the pace of price rises have slowed? - and updates throughout the week from a host of retailers and consumer brands about how they traded in the run-up to Christmas including Ocado, Burberry, Currys, WH Smith, Boohoo, Deliveroo, Dunelm, Premier Foods and more…
Other stories that matter…
Davos - aka the World Economic Forum’s annual meeting - takes place this week. It is a gathering of world leaders, chief executives, advisers and celebrities who this year will discuss “cooperation in a fragmented world”. Larry Elliott, The Guardian’s economic editor, has written an excellent and personal guide to whether Davos actually does any good, what happens in the Swiss venue, and whether criticism of the gathering is valid. In short - yes, lots of networking, and yes (The Guardian)
A breakthrough in heat pump technology by a professor at the University of Glasgow is one of a collection of recent innovations that mean it is becoming increasingly realistic that the technology could be used to heat homes (Knowable)
The demise of bucket shop trading in the early 1900s and new laws to protect retail investors after the Wall Street Crash in 1929 show that cryptocurrencies, and specifically bitcoin, should welcome government regulation (Investor Amnesia)
UK households are the worst in the developed world at saving. This is a problem during a cost of living crisis and the government must offer better incentives, a report by the Resolution Foundation has said (The Times)
The Campaign for Real Ale (Camra) has named The Tamworth Tap in Tamworth as the best pub in the country (Business Live)
Lawyers in the City of London are expecting a wave of litigation over the crisis in pension funds after Liz Truss and Kwasi Kwarteng’s mini-Budget last year (FT)
Fascinating interview with Tyler Cowen by Henry Mance in the Financial Times. Cowen is an economist and writer who has big ambitions - “My personal ambition is to be the individual who has done the most to teach the world economics, broadly construed” - and describes the south-east of England as “one of the most marvellous parts of the world, one of the few places where you can really birth and execute a new idea”. He enjoys writing about restaurants, films and books as much as economics… (FT)
It was my birthday at the weekend and we spent it on a short family break on the Jurassic Coast in Dorset. We stayed at Moonfleet Manor hotel, which is based right on the coast and has superb facilities for families, including a big indoor play area, swimming pool, cinema room and kid’s club. For adults, the food and drink is overpriced for what it is, but the setting is brilliant. If you can get a good price for a room (book in advance or go out-of-season like we did) then this is a fantastic place for families with young children…
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