The FTSE 100 index: here are 3 of my predictions for 2021

2021 looks set to be an interesting year for the FTSE 100. Here, Edward Sheldon lists three lead index predictions for the year ahead.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

At the start of every year, it’s common to see plenty of stock market forecasts. Already this year, I’ve read many 2021 predictions for the FTSE 100 index. 

Personally, I think trying to predict what level the FTSE 100 will finish the year at is a pretty pointless exercise. That’s because, realistically, no one has any idea where it will end up. That said, I do have a number of more general predictions for the Footsie in 2021. Here’s a look at what I expect.

FTSE 100 prediction #1

My first prediction for the FTSE 100 is that 2021 will be a better year for dividends. Last year was an absolute shocker for dividends. Over 50 companies in the index cut, suspended, or cancelled their payouts. This year, we should see more stability on the income front.

Already, many FTSE 100 companies have announced they will be resuming payouts. Others will most likely do the same shortly. Encouragingly, the Bank of England has lifted its ban on bank dividends, meaning that UK banks such as Lloyds and Barclays could resume their payouts this year.

It’s worth pointing out that some dividend payouts from FTSE 100 companies may not be as generous as they were. Some companies are likely to use the disruption as an opportunity to reset their payouts. However, overall, dividend payments should be up significantly on last year.

Prediction #2

My second prediction is that we’ll see at least one stock market pullback or ‘correction’ of at least 10% at some stage in 2021. There are a few reasons. One is that there’s a lot of optimism in the market right now. A little bit of bad news could impact sentiment towards shares significantly.

Another is that Covid-19 is far from over. Many businesses are likely to continue experiencing challenges this year. A third reason is that there are pockets of the stock market that are in bubble territory right now. A significant pullback in these areas of the market could hit the FTSE 100.

Investors shouldn’t fear a pullback. Corrections are a very normal part of stock market behaviour. It’s worth being prepared for one though, and having some cash on the sidelines to be able to take advantage of lower share prices is a shrewd move.

Prediction #3

Finally, my third prediction is I don’t think the FTSE 100 index, as a whole, will generate the strong growth some investors expect. The reason is the FTSE 100 contains a large number of companies facing big challenges and struggling to generate any growth at the moment.

Companies such as Royal Dutch Shell, Vodafone, and BT Group are examples. The performance of these kinds of companies has weighed the index down in recent years and this could continue in 2021 and beyond.

Given the composition of the FTSE 100, I see it very much as a stock picker’s index. Instead of owning the whole index, through a tracker fund, I think it’s a much better idea to pick out the best stocks and own these shares individually.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Edward Sheldon owns shares in Lloyds Banking Group and Royal Dutch Shell. The Motley Fool UK has recommended Barclays and Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Shot of a senior man drinking coffee and looking thoughtfully out of a window
Dividend Shares

How much passive income could I generate with just £10 per day?

Ken Hall wants to create his £10,000 yearly passive income dream by investing just £10 every weekday day in Footsie…

Read more »

Investing Articles

Is the Rolls-Royce share price too high? Here’s what the experts say

The Rolls-Royce share price has surged over two years, representing one of the FTSE 100’s greatest success stories. But is…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

A top S&P 500 growth share and an ETF I’d buy this November!

I think this S&P 500 share and exchange-traded fund (ETF) could be brilliant additions to my ISA or SIPP right…

Read more »

US Stock

Here are the best-performing S&P 500 stocks after the US election result

Jon Smith notes some of the largest gainers from the S&P 500 yesterday and explains how the election result has…

Read more »

Growth Shares

2 UK stocks knocking on the door of promotion to the FTSE 100

Jon Smith points out a couple of UK stocks that he feels could be ready for the big league based…

Read more »

Investing Articles

Rolls-Royce shares just fell 7%. Is it time to buy?

This investor in Rolls-Royce shares takes a look at the FTSE 100 engine maker's trading update to see what caused…

Read more »

Young Black woman looking concerned while in front of her laptop
Investing Articles

What’s going on with the Auto Trader share price?

Paul Summers takes a closer look at why the Auto Trader share price has tumbled despite the company posting higher…

Read more »

Investing Articles

Legal & General shares look set to give me a mind-blowing 10.22% yield in 2026!

Harvey Jones is getting a brilliant second income from his Legal & General shares and expects even more to come.…

Read more »