The FTSE 100 hit a new intra-day high on Friday (17 January), peaking at 8,508 points in the early afternoon. It might be even higher by the time you read this.
Stubborn inflation, rising business costs and threats of US trade tariffs don’t seem to be holding anyone back.
In fact, inflation news might actually have helped boost optimism. The UK’s December figure fell to 2.5%, not quite at the Bank of England’s 2% target but it’s the right direction.
US inflation outlook
And the US core consumer price index (CPI) dropped to 3.2% year on year, with 3.3% expected. Again still some way to go, but that’s positive.
Sterling falls will have helped boost UK stock prices too.
Multinational company earnings are closely tied to the US dollar, and the pound has slipped 9% from $1.34 in September to $1.22 as I write.
On the cards
I think bull market signs have been in the air for much of the past year, and I reckon it shows in the banking sector.
UK investors seem to have been largely inward-looking for the past few years. But a glance at what’s been happening to the Barclays (LSE: BARC) share price shows a big change.
Barclays shares are up 104% in the past 12 months. Crucially, it’s perhap the most outward-looking and diverse of the big Footsie banks.
Global banking
At Q3 time, Barclays reported a 6% rise in Investment Bank income, with a 3% boost for Global Markets income.
If the incoming US administration relaxes some regulations regarding investment banking as expected, the world outlook for the sector might get even brighter.
Analysts are already forecasting rises in earnings and dividends for Barclays in the next few years. The predicted dividend yield for 2024 is down to 3% after the share price rise, mind. So maybe the shares are fairly valued for now.
Though Friday’s bullish stock market is cause for cheer, there is a bit of a fly in the ointment.
Reasons for caution
The Christmas retail period was disappointing, which I think could put a drag on markets and perhaps even pull the outlook for the banks back a bit.
Forecasters had predicted a 0.4% month-on-month rise for retail sales in December. But figures just out from the Office for National Statistics instead show a 0.3% drop.
Food retailers faced the biggest hardship, with a 1.9% fall.
It raises the fear that the UK economy might have shrunk in the final quarter of 2024. Still, there’s a bright side even to that. Along with the drop in inflation, it surely boosts the chance of an interest rate cut at February’s Monetary Policy Committee meeting.
What does it mean?
So what should investors do about the booming FTSE 100? Sell up and pocket some profit? Or maybe pile in now it looks to be on the up?
I’m pleased to see the optimism, but it doesn’t change anything for me. I’m looking to invest in companies with great long-prospects at good prices. Same as always.
