People that have been investing for many years will know that 7,000 points is a very significant level for the FTSE 100. Certainly, some investors will argue that it is ‘just a number’, but in the FTSE 100’s case it is much more than that because, were it to reach it, it will finally signify that the FTSE 100 is ‘back in business’!
And, with it now being just 156 points (or 2.3%) shy of the 7,000 points mark, it seems likely that the FTSE 100 will reach it within the next few weeks. Here’s why.
A 15-Year Delay
Of course, 7,000 points is significant because the FTSE 100 has, since the turn of the Century, delivered precisely zero capital gains. In other words, it is trading at the same level as it was over 15 years ago and this has caused many investors to feel somewhat downbeat about the idea of investing in shares, with them preferring other asset classes such as property.
As a result, and while other stock markets across the world have reached record highs (such as the S&P 500 in the US), the FTSE 100 has been stuck at below 7,000 points for a long time. Passing it could cause a significant upturn in investor sentiment and encourage more investors to buy shares, thereby pushing its level even higher.
The Catalyst
Clearly, there are significant challenges on the horizon for the world economy, with the lower oil price and Russian sanctions being two notable examples. However, with the Eurozone’s quantitative easing (QE) policy set to make a major impact on asset prices and boost the European economy, the near-term outlook for the FTSE 100 appears to be positive. As such, it appears likely that the index is at the start of a more prosperous period.
The catalyst that could push its level beyond 7,000 points this month is the outcome of the talks between Greece and Eurozone leaders. Certainly, this will cause increased volatility in the very short term, as the market remains uncertain as to what the eventual outcome will be. But, realistically, a compromise that reduces the level of austerity that Greece faces and also allows the Eurozone to ‘keep face’ is likely to be found sooner rather than later. Should this occur, the substantial bull run that perhaps should have taken place in the weeks following the announcement of Eurozone QE (were it not for the outcome of the Greek election) will most likely be enough to push the FTSE 100 at least 156 points higher.
