Will the FTSE 100 index go up this year?

Important information - the value of investments and the income from them, can go down as well as up, so you may get back less than you invest.

Some of the top holdings in the FTSE 100 include pharmaceutical firm AstraZeneca, oil giant Shell and BP, financial services firm, HSBC, and consumer goods company Unilever.

In the past year, the FTSE 100 was up by 7.9%. So, will the FTSE 100 index continue to go up this year?

Well, it’s impossible to provide a definitive answer. Like other stock market indexes, the performance of the FTSE 100 is vulnerable to external factors. This includes -

1. UK interest rate policy

Generally, interest rates and the stock market have an inverse relationship. Typically, when the UK central bank - the Bank of England raises interest rates, investments in the FTSE 100 may take a fall.

When interest rates are high, it can generally lead to decreased profits for companies. That’s because they may have to endure higher interest repayments which may then impact earnings negatively.

However, in the past couple of years, interest rates have remained elevated. Since December 2021, rates have climbed up massively. For nearly a year, they have sat just above 5%.

Like many of the world’s indexes, the Covid-19 pandemic also caused the FTSE 100 to fall dramatically. In 2020, it fell by over 16%. In 2021, it showed signs of recovery, with a 26.6% return. Despite interest rates at record highs in the last couple of years it appears it didn’t knock the index as much as investors may have anticipated.

However, some companies in the FTSE 100 may be far more vulnerable to high interest rates compared to others.

2. Corporate earnings reports or announcements

The FTSE 100 will also be impacted by earnings expectations as it drives stock valuations. A negative earnings report can cause a company’s share price to fall - sometimes quite dramatically in cases.

3. Oil price

The FTSE 100 includes some of the biggest oil giants, airlines, and automobile companies. If the oil price rises, airline and automobile companies will have to pay more to fuel their planes and companies, while consumers will have to spend more on gas. This can have an impact on companies in the FTSE 100. Equally, oil giants like Shell and BP may be able to offset the negative impact.

4. Fluctuations in pound sterling

According to the London Stock Exchange, over four-fifths of the sales of FTSE 100 constituents now come from outside the UK.¹

That means the profits of most companies in the FTSE 100 are made in dollars. So, if the value of the pound rises, this can have a negative impact on corporate earnings. However, when the US dollar strengthens, the FTSE 100 may rise.

5. Geo-political developments

Due to the FTSE 100’s exposure to the global economy, the UK stock market is impacted by political news and instabilities.

For example, the Russia Ukraine war placed extreme pressure on energy companies in the FTSE 100. Political developments like Brexit also caused the FTSE 100 to see a fall. Following the referendum, the FTSE fell by over 8%.

Past performance is not a reliable indicator of future returns.
Source: Refinitiv, total returns from 31.5.19 to 31.5.24. Excludes initial charge.

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Source

¹ London Stock Exchange, 5 March 2024