There is something to be said for the resilience of the FTSE 100 index, and the stock markets in general. Just very recently, the Russia-Ukraine war triggered a panic reaction causing the markets to tumble sharply. The FTSE 100 even dropped below 7,000. But weeks later, it is rallying again. It recently reached its highest levels since the pandemic!
This is heartening for me as a stock investor. But a big question looms. Can the market rally continue? More specifically, with the FTSE 100 index trading close to 7,600 now, I find myself asking if it is set to surpass the next level of 8,000. It is possible, of course.
FTSE 100 performance linked to constituent companies
Its performance is based on that of its constituents. If companies represented by it continue to post solid results, it could retain momentum. Some of the biggest stocks in the index by market capitalisation are indeed doing well. They include healthcare, consumer goods, banking, and commodity stocks.
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The biggest of these is the pharmaceuticals company AstraZeneca, which I hold in my portfolio. I wrote an article on it just yesterday, so I will skip the details here. But in a nutshell, the stock has performed quite well over time. And even if the economy slows down over the course of 2022, I expect it to continue being a good long-term stock to hold. That’s even though it is quite pricey, in relative terms.
Commodity price boom continues
Shell is the second biggest of these, and BP also figures in the top 10 FTSE 100 stocks by market capitalisation. I think these are some of the best stocks to hold in the current times of rising oil prices. They have been a positive addition to my investments over the past couple of years, though there is a possibility of a slump if demand slows down. But then that is always a risk with cyclical stocks.
Speaking of which, Rio Tinto and Glencore are two others of the biggest 10 FTSE 100 stocks. Both commodity stocks did very well during the recent run-up in commodity prices. I even sold my holdings of Glencore at a neat profit. And I still own Rio Tinto shares. With metal prices expected to stay firm in 2022, I reckon both stocks could continue to gain. Not the least of this is because of the fact that they are big dividend payers. At the same time, in a downturn they could be affected negatively as well, though.
Housing market is booming
The real estate market is booming as well, surprisingly so. Even though the government has withdrawn its fiscal stimulus, house prices continue to rise fast in the UK. This should positively impact house builders as well as mortgage lenders like Lloyds Bank.
What I’ll do
I am optimistic even though in the short term we really do not know what will happen next. Inflation could impact companies’ performance negatively. It can also dampen investor sentiment anyway. We do not know how long the war would go on too. And the pandemic is not out of the way either.
On balance, though, while there are risks, I would not entirely rule out the fact that the FTSE 100 can surpass 8,000 this year. I will keep investing in these stocks now.
