The FTSE 100 is back above 7,000, but can it hit 8,000 in 2021?

Could the FTSE 100 hit 8,000 points this year? As always, there are arguments for and against, and in this article, I consider both.

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.

One English pound placed on a graph to represent an economic down turn

Image source: Getty Images

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.

After a tumultuous 2020, the FTSE 100 index rose back above 7,000 points last week and so far seems to be sticking above that landmark number. How much higher can it go in 2021? The next big round number is 7,500. The all-time high (depending on the data source) for the index is 7,903.5, which it hit in May 2018. So, I have to ask myself: could the FTSE 100 blow straight through that all-time high and hit the milestone of 8,000 points in 2021?

FTSE 100 hitting 8,000

For the FTSE 100 to keep rising, the share prices of the constituent 100 companies have to rise as well. What drives stock prices higher? Well, traditional thinking has it that when the economy is doing well, companies report higher profits. When companies are reporting increasing profits, their stock prices tend to rise.

Are FTSE 100 companies on aggregate going to be reporting higher profits this year? Compared to 2020, I think they should. Headline annual GDP growth figures (admittedly measures against a low base) for the UK are expected to be healthy in 2021 and 2022. That would result from a return to near or full economic activity and pent-up consumer spending being unleashed as coronavirus travel and activity restrictions are relaxed.

Should you invest £1,000 in 95841 right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if 95841 made the list?

See the 6 stocks

Gaining momentum

That consumer spending will find its way to the top line of the income statement of many FTSE 100 companies. In turn, assuming cost structures remain fairly constant, bottom line profits should fatten. And if increasing profits drive stock returns, then there appears to be ample fuel to push the FTSE 100 towards and perhaps through the 8,000 point mark.

However, the notion that earnings drive stock returns has been challenged. Aside from fundamental drivers, like earnings growth, momentum and animal spirits have been suggested as potentially important stock return drivers. The FTSE 100 is up 2,500 points since the lows of the 2020 market crash. That’s quite a run, and there is a tendency for rising prices to keep rising (until, of course, they don’t). When the economy is doing well and investors feel confident, they tend to invest in riskier assets like stocks. The wave of euphoria accompanying the end of a pandemic could help the FTSE 100 towards 8,000 points.

Holding the FTSE 100 back

Despite the FTSE 100 rising 2,500 points in a year, the S&P 500 has left it in the dust. I think that’s mainly down to the mix of companies in each index. The FTSE 100 has a 1.3% weighting in the information technology sector. The S&P 500 has an almost 30% weighting in tech, including titans like Apple, Microsoft, and Facebook. These are the sorts of high-growth companies that would make a case for the FTSE 100 hitting 8,000 points this year more compelling.

A chart showing FTSE 100 sector weightings

Source: Siblis Research

The UK’s main index has a near 30% weighting in financials and energy. Banks, insurers, and oil majors might indeed see profits increase as the world economy booms. But I can’t see how consumer staples companies, which make up nearly 20% of the index and have benefitted from relatively stable revenues during the pandemic, can do much more in the pursuit of 8,000 points.

Of course, there is more to say on the matter. I could talk about the effect of dividend payouts, interest rates, and the UK’s relationship with the EU and the world post-Brexit, and more. Could the FTSE 100 hit 8,000 this year? I think it could. Will I be banking on it? No.

But what does the head of The Motley Fool’s investing team think?

Should you invest £1,000 in 95841 right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if 95841 made the list?

See the 6 stocks

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.

Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. James J. McCombie has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Apple, Facebook, and Microsoft and recommends the following options: short March 2023 $130 calls on Apple and long March 2023 $120 calls on Apple. 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

Investing Articles

Here’s what £20,000 invested in IAG shares at the start of 2024 would be worth today

IAG shares smashed the FTSE 100 in 2024, and Harvey Jones is kicking himself for squandering this buying opportunity. But…

Read more »

Investing Articles

BP shares are forecast to return 30% in 2025 – and they’re filthy cheap with a P/E of 5.8!

Harvey Jones bought BP shares twice in the autumn and after a bumpy start he expects great things in the…

Read more »

Investing Articles

At a P/E ratio of 8, are shares in this FTSE 100 winner unbelievable value?

3i is a top-performing UK stock that trades at a P/E multiple of 8. Should value investors be snapping up…

Read more »

Investing Articles

Best British growth stocks to consider buying in 2025

We asked our freelance writers to reveal the top growth stocks they’d buy in 2025, which included two 'Fire' recommendations!

Read more »

Passive income text with pin graph chart on business table
Investing Articles

2 shares to consider for turning an empty ISA into a £31,301 a year passive income machine

Earning passive income doesn’t take huge amounts of cash to start with. Investing in great companies consistently over time can…

Read more »

Investing Articles

What £20,000 invested in BT shares at the start of 2024 is worth now…

BT shares enjoyed a solid 2024, Harvey Jones discovers, especially once the bumper dividend is taken into account. So should…

Read more »

Investing Articles

The Lloyds share price could hit 80p in 2025!

The Lloyds share price could push as high as 80p in 2025, according to one highly respected analyst. Dr James…

Read more »

many happy international football fans watching tv
Investing Articles

This FTSE 250 stock offers no passive income but looks 42% undervalued to me!

Our writer has found one stock that he thinks could take off in 2025, even though it doesn’t offer the…

Read more »