The FTSE 100 (FTSEINDICES:^FTSE) has put in a staggering performance over the past few years.
Indeed, during the past five years the FTSE 100 has jumped 59%, excluding dividends. However, performance so far this year has been lacklustre. Year to date, excluding dividends, the FTSE 100 has lost 0.2%, although this could be about to change.
New highs
Over the past two months, the FTSE has printed a new 52-week high of 6,895 and many analysts believe that the index can go higher. In particular, Goldman Sachs has an year-end 2014 target of 7,000 points for the FTSE 100, while Morgan Stanley has a target of 7,220 points.
Positive sentiment extends across market, with several polls indicating that private investors believe the index will end 2014 at a record 7,000 points. Similar polls also indicate that investors believe the index will hit 7,200 points by the middle of 2015.
Getting a boost
The FTSE 100’s stellar performance over the past few years is a result of global economic growth. For example, the UK economy is well on its way to recovery and the green shoots of growth are starting to appear within Europe. The world’s largest economy, the United States, has also sprung back to growth recently.
Then there is the improving corporate deal environment. Specifically, the value of global mergers and acquisitions deals surged to $1.4tn during the first four months of 2014, beating all previous records. And the deals are set to continue with several buyouts announced during the past few weeks.
Nevertheless, despite these optimistic forecasts and record levels of deal making, many market participants remain cautious. According to several surveys, the percentage of cash held within investors’ portfolios is currently sitting at historically high levels.
High levels of cash imply that investors are unwilling to, well, invest.
Caution unwarranted
However, it would appear as if this caution is unwarranted, as the FTSE 100, if anything now looks cheap compared to historic averages. Specifically, according to the Financial Times, the index is now trading at a historic P/E of 14.1, compared to its historic average of 19.1.
What’s more, many of the FTSE 100’s largest constituents, including GlaxoSmithKline and HSBC are trading at relatively low levels compared to their historic valuations. The FTSE 100 itself is a better investment than many cash savings accounts, with the index supporting a dividend yield of 3.5%.
The bottom line
So overall, many market participants believe that the FTSE 100 can hit 7,000 by the end of this year, and they could be right.
