This week the FTSE 100 once again surpassed the key level of 7,000 and the index could have further to run.
You see, even though the Footsie is currently trading within a hair’s breadth of an all-time intra-day high, many of the index’s largest constituents are trading near one-year lows.
Oil drag
Take the oil sector, for example. Oil & gas companies make up around 14% of the FTSE 100 and as the price of oil has slumped over the past six months, the share prices of oil producers have followed suit.
Specifically, Royal Dutch Shell and BP alone account for 9.2% of FTSE 100, with smaller peers such as BG Group accounting for the rest. Over the past 12 months BP and Shell have underperformed the FTSE 100 by 10% and 15% respectively.
All in all, the oil & gas sector accounts for 14% of the FTSE 100 and until oil prices rebound, the index’s growth will be held back.
But it’s not just the oil sector that’s holding the FTSE 100.
Global banking giant HSBC makes up 6.4% of the index. Over the past 12 months the bank has underperformed the FTSE 100 by 8%.
Resource giants BHP Billiton and Rio Tinto have also proved to be a drag on the FTSE 100’s charge higher. Since the beginning of last year, Rio and BHP have underperformed the index by a staggering 22% and 26% respectively. These two resource giants make up around 7% of the FTSE 100.
Spring back to life
In total, the beaten-down resource and oil sectors, as well as HSBC account for one third of the FTSE 100. When these sectors spring back to life, the FTSE 100 is bound to surge higher and could hit the key level of 8,000.
Many City analysts hold a similar view. The consensus expectation is that the index will end the year somewhere around the 7,500 level, although the most optimistic forecasts call for a late surge towards 8,000.
At the bottom end of the scale, Morgan Stanley has one of the most pessimistic targets. Its analysts believe that the FTSE 100 will end 2015 no higher than 7,200 as foreign exchange headwinds and political risks hold back growth.
Meanwhile, Barclays has a more optimistic outlook, with a year-end FTSE target of 7,300. Citigroup has the most positive outlook, predicting that the FTSE 100 will end the year at a record 7,700.
Difficult to predict
But in reality, not even the world’s top economists or City analysts can accurately predict where the market will be in a year’s time.
There are many reasons why the market could suddenly decide to take a dive, or rally to a new high. Trying to time the market often results in failure and can cost you a lot of money.
