The markets are never static, with indices constantly changing in response to economic and global factors. The FTSE 100 has enjoyed a strong performance in October 2021, reaching a 20-month high.
But what does the future look like for the index – could it climb higher in the short to medium term? Here’s a closer look at some of the predictions for the FTSE 100 over the coming months.
Optimism in the Market
Recent months have seen the market endure torrid times, with the global downturn taking its toll on share prices. That trend was reversed in October 2021, with the index buoyed by solid results in the banking, energy and mining sectors.
Barclays reported a doubling of its profits to £2 billion while HSBC reported its Q3 results as higher by 74% year-on-year. The MPC’s decision to hold interest rates for November was a surprise, leading to an updated UK market analysis, but hasn’t dampened the party overall. Experts believe that it’s only a matter of time before interest rates start to climb, which will push bank prices up even higher.
The cost of petrol has hit the headlines, with shortages sending prices spiralling. The cost of Brent crude has rocketed to a multi-year high with appetite outstripping global supplies, keeping prices pushed to the max.
Even sectors that are still experiencing a tricky time reported better results than anticipated. Whitbread was widely expected to post a significant drop, but its half-year loss was much smaller than forecast, and the firm believes that in 2022 it will be back to pre-pandemic levels.
Although there are a lot of factors pushing the FTSE 100 upwards, the trend may not be sustained for as long as investors hope. The worst of the global conditions seem to have passed, but the market still has other challenges to navigate.
The economy is recovering well. However, high inflation is causing concern. Inflation is currently 3%, significantly above the 2% target set by the Bank of England. Governor Andrew Bailey has admitted that inflation may persist for longer than he originally predicted, pushed upwards by the energy and oil prices.
With inflation putting pressure on pockets, many companies could likely see their revenue start to tumble. The supply chain crisis and fallout from Brexit continues to rumble on, without a solution looking likely. If energy costs remain high, this could be another pressure point for businesses who are forced to shell out for higher bills than predicted.
All of this means that there could be a potential correction in the FTSE 100 in the short to medium term, but much will depend on the Bank of England’s response to high inflation. If interest rates are hiked up too quickly, companies will see their capacity to grow stifled but failing to control spiraling inflation could wipe out consumer spending.