FTSE 100 beats 2018 record to hit all-time high

The UK’s blue-chip index reached a record high at market close of 7901.80, beating the previous record high of 7877.45 set in May 2018. It reached an intra-day high of 7,906.58.

However, at the open today (6 February), the index has fallen fairly sharply from its high on Friday, with about 90 of the stocks in the red. 

Sectors including energy, mining and banking, which have profited from the macroeconomic environment of rising oil prices and higher inflation, have been major drivers of the index’s positive performance.

“The FTSE 100 is partly made up of legacy energy providers and miners, who benefited greatly from the spike in inflation and the energy crisis that hit following the outbreak of the Russia-Ukraine war,” said Marcus Brookes, chief investment officer at Quilter Investors.

“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.”

FTSE 100 rally may persist despite mounting economic pressures for the UK

The reopening of China from its zero Covid policy has also played a part, leading to increased demand for several component stocks which have significant exposure to the country, which has helped to push the index higher. 

However, Brookes noted that as the economic mood brightens and long-term trends continue to play out, the index’s fossil fuel giants “may find themselves missing out on that rebound, and thus the wider index could struggle”.

He also warned that as a potential recession looms, the index may still have some significant volatility in store for investors. 

Alex Wright, portfolio manager at Fidelity International, said that despite the bleak economic outlook, the FTSE 100 still presents opportunities due to “attractive” valuation levels compared to overseas peers, a large divergence in performance between different parts of the market and M&A activity.

FTSE 100 nears record high

“In this environment, I favour financials, especially banks whose profits benefit from a rising rate environment,” Wright said. “The backdrop is also positive for life insurers, whose earnings have proved resilient during the pandemic and should continue to benefit from an acceleration in the pace of pension fund re-risking.

“Conversely, I am wary of areas such as housebuilders and other finance dependent sectors which are likely to be badly impacted by the increased cost of finance for their customers, even if not highly leveraged themselves.”

The domestically-focused FTSE 250, meanwhile, is still short of the levels it held in May 2018 and is some 15% below its all-time high set in 2021. However, it is up over 20% from the levels it dipped to last October.