There are times when events in the stock market make the mainstream news. This has happened recently, with the FTSE 100 reaching new all-time highs.
On 3 February, the index ended the day at 7,901.8, passing the previous closing record of 7,877.45 set on 22 May 2018. Last Thursday (9 February), it made another fresh high, closing at 7,911.15.
What’s driving the Footsie to record levels? Which stocks have led the charge? And can it really be wise to invest when the market’s as high as it is now?
Size matters
The FTSE 100 is an index of the UK’s biggest 100 companies, weighted by market capitalisation. Market cap is calculated by multiplying a company’s share price by its number of shares in issue.
For example, at the 9 February Footsie high, AstraZeneca‘s share price was 11,390p and it had 1.55bn shares in issue. This gave it a market cap of £176.5bn and made it the biggest company in the index.
The smallest constituent, Frasers Group, had a 794p share price, £477.5m shares in issue, and a market cap of just £3.8bn.
Because of the weighting by capitalisation, the performance of the FTSE 100 is largely driven by the bigger companies. To give some idea of the extent of this, the 11 biggest firms currently account for 50% of the index, while the 11 smallest represent just 2%.
Intuition
In the news coverage of the Footsie’s new highs, BBC economics correspondent Dharshini David explained: “The FTSE 100 is dominated by banking and energy companies, which have performed relatively well, the latter sharply boosted by higher oil and gas prices.”
Intuitively, this sounds on the mark. After all, higher interest rates are a boon for banks. And we’ve heard plenty about “‘BP and Shell making ‘obscene’ record profits.”
However, intuition isn’t always right.
Banking
At the recent all-time high, banking giant HSBC was the Footsie’s third-largest company, with a market capitalisation of £123bn.
However, its share price and capitalisation were 17% below their levels back at the market’s previous peak of 22 May 2018.
And the story’s similar for the Footsie’s other banks.
Oil
Shell (£171.6bn market cap) and BP (£98.6bn market cap) were ranked second and fifth in the FTSE 100 at its latest high.
The former’s shares were 10% lower and the latter’s 7% lower than at the previous peak. And with both companies having done shed-loads of share buybacks since 2018, declines in their market caps were even more pronounced: 25% for Shell and 16% for BP.
The market caps of HSBC, Shell and BP declined by £103bn in aggregate between the Footsie’s 2018 and 2023 highs.
Hero
If the bank and oil giants had a negative impact on the FTSE 100 over the period, what drove the index to its new record levels?
The aforementioned big pharma firm, AstraZeneca, has been an heroic champion for its shareholders and the index. On 9 February, its closing share price was 11,390p, up 109% from its level on 22 May 2018.
AstraZeneca’s number of shares in issue has also increased, largely because a $39bn acquisition in 2021 was a cash-and-shares deal. As such, the rise in the company’s market cap was even more pronounced than that of its share price. Its market cap increase of 155% — or £107bn — more than offset the negative impact of HSBC, Shell and BP.
Supporting players
I’d be overstating it — but not by much — if I said AstraZeneca has not only delivered for its shareholders, but also single-handedly dragged the FTSE 100 to its new all-time highs.
There’ve been some strong supporting players. The Footsie’s big miners have put in a shift for investors and the index. Rio Tinto (share price up 51% and market cap up £23bn), Glencore (+39% and +£12bn), and Anglo American (+79% and +£19bn) were ranked seven, eight and 11 when the index made its fresh high on 9 February.
Other eye-catchers included sixth-ranked drinks giant Diageo (+29% and +£12bn), and fifteenth-ranked London Stock Exchange Group (+69% and +£23bn).
Another fresh high
I posed the question at the top of this piece: can it really be wise to invest when the market’s as high as it is now?
I have two comments. First, investors who bought the likes of AstraZeneca, the big miners, Diageo and London Stock Exchange on 22 May 2018 will probably be chuckling right now.
And second, as I’m preparing to file this article, the FTSE 100 has just closed at another fresh high: 7,947.6.
