FTSE 100 at lofty levels

At Tricio we like to look at charts in order to gauge market sentiment and investor action. Equity markets rallied over the summer with new all-time highs set in many indices in Europe, the US, Japan and even the UK.

We say ‘even the UK’ as the FTSE 100 is not an AI play, a semiconductor ‘hot chip’ play, nor a data centre, megacap tech or Bitcoin or other sort of ‘catch the rainbow’ sort of play.  The top constituents are definitely ‘old school’ in nature. The top 10 shares in the index are HSBC (Asia focused bank), AstraZeneca (pharma), Shell (energy), Unilever (household goods), Rolls-Royce (industrial), British American Tobacco, BP (energy), RELX (information/industrial), Glaxo (pharma) and BAE (industrial). These make up a weighting of 45.9% of the index. 

And yet even with a decidedly ‘value’ tilt, the index is up over 12% year-to-date, the PE ratio is just above 18 and there is a dividend yield near 3.2% on offer. What’s not to like?

The weekly chart below (semi-log scale) shows that it took forever to push above the 1999 high (flat blue line just below 7,000), finally cleared in 2015. The FTSE eventually pushed well above this level but stalled shy of 8,000 in 2018 (flat red line). It only took six years to really break sharply above this line in 2024, and in no time at all (relatively) we are above 9,000. We have focused on potential gains to the 9,800 rising lines as the next target area in our publications.

But we worry. The Bank of England has plenty of reasons to be ‘cautious’ in lowering rates any further as inflation readings are well above their target rate. The UK government seemed to be ready to offer stimulus spending last year and the gilt market didn’t rebel like they did with PM Truss in 2022. But since then government finances seem to have become more difficult to square. True, the FTSE 100 is not a complete reflection of UK Plc and it is usually seen as an ‘international index’. But the global picture with economic slowdown risk still roiling around and all sorts of worries about governance, wars etc. making the rounds and gold making new all-time highs at the drop of a hat is not exactly worry free either.

For now, we expect the FTSE 100 to continue to climb the wall of worry. Keep an eye on the 50-week moving average oscillator (red line in the lower panel). Keep an eye on how the index performs as chart support at 8,900 and 8,700 areas will ideally hold on dips.  8,000 is the big support line zone below this, with the April trough near 7,545 key below this.

Gerry Celaya

Chief Strategist