What’s happening to FTSE 100 shares? The lead index has closed above 7,500 points every day this week, so far. And,as I write these words on Friday, it’s hanging on above that level.
If the top 100 UK shares keeps its head up and ends above 7,500, that’ll be the second week in a row.
So are investors finally feeling bullish about the prospects for British shares? And is the UK stock market set for a bull run after years of disappointment?
Looking at the week’s optimism, we might think that stock market income prospects might be looking good. Oh, hang on, they are! Forecasts suggest that FTSE 100 dividends will reach a massive £85bn this year.
That’s just a shade short of the all-time record set in 2018, of £85.2bn. And it amounts to a dividend yield of 4.2%. Even with interest rate rises, that’s still a lot better than a savings account.
Optimism
So maybe investors are seeing dividend shares as good value now and are locking in big yields for the long term. If so, it makes me think share prices could be on the way up.
But what seems to drive institutional investors more than anything is uncertainty. If they think something might go wrong, they steer clear until there’s a bit of clarity. Worried that inflation might exceed 10%? Oh dear, best keep away from shares then.
But now we know that it’s reached 10.2%, that particular uncertainty is over. The City folks can cross that one off their list of unknowns. Perhaps, ironically, fear of bad news can be more damaging to the stock market than bad news itself.
Seeing the light
When all our fears come true and we’re convinced we’ve finally hit rock bottom… well, then things can only get better, surely?
As for all those big investing firms in the City, they seem to spend every day fretting over all sorts of things. Will interest rates be hiked further to help tackle inflation? Ooh, better sell then. Or is it buy?
What about the bond yield curve? How bendy is today? Hmm, that means buy. Or does it mean sell? Sorry, what? Over my investing career, I’ve never given a second’s thought to what a yield curve even is. In fact, I just had to look it up to check I got the name right.
But these are the kinds of things that City folk lose sleep over.
What really matters
What difference does it all make to the investment value of a top quality FTSE 100 company offering, say, 5% dividends? None. None whatsoever.
So maybe, just maybe, investors are finally waking up. And perhaps they’re thinking “oh, hang on, never mind those charts and fancy equations and all that, just look at these fat dividends”.
FTSE 100 dividends are growing. Cover by earnings is looking strong. And some of our most cash generative FTSE 100 shares are on very low prices.
When enough people recognise that, that’s when a bull market could start. Maybe it already has…
