Talk about raining on your parade. The FTSE 100 achieved its landmark level of 8,000 only to be subject on the day to a torrent of backhanded compliments that pretty much amounted to abuse.
“Hardly a stellar performance,” one analyst fired off after the record-high close and mounting of the new milestone.
“Every dog has its day,” barked one wealth manager.
“Even a blind chicken finds a piece of corn every now and then,” a trader squawked.
But there were some who reluctantly acknowledged that what is a mechanically composed index (the next quarterly reshuffle is due at the end of the month) does have some attractions.
“Boring is the new sexy,” said Jason Hollands, managing director of Bestinvest.
“In recent years, many investors have dismissed UK blue chip shares as ‘boring’, lacking exposure to exciting sectors like technology and social media. But in a more trying economic environment, solid companies churning out reliable dividends are well worth considering.
Worries about the UK economy should be reminded that it has not really got much to do with the FTSE 100, said UBS strategist Caroline Simmons, with only a quarter of sales from the blue-chip index's constituents coming from within the country.
For cautious investors, it was a time to remember the suggestions of one the most famous contrarian stock pickers of all time, Sir John Templeton.
“Bull markets are born on pessimism, grow on scepticism, mature on optimism and die on euphoria,” was the quote from the legendary fund manager, cited by AJ Bell investment director Russ Mould, who said there “may be no better example of that right now” that the Footsie index and the UK equity market.
Even though a lot of the business and economic news in recent weeks seems bad, Mould noted that “markets are saying that was priced” in the middle of last year, when the FTSE was not the only index to endure heavy falls.
“The bad news is known,” he repeated for those at the back. “The bear case always looks most compelling at the bottom and there is an old saying that ‘you can have cheap shares and good news, just not both at the same time.’”
With the Footsie has been ignored by most global investors since 2018, while London has been hammered in recently years for failing to attract more new flotations and temporarily losing its status as Europe’s largest arena by market cap to France, such “knocking copy” is persisting today, Mould sighs.
Investors should think about the "more important drivers" for the UK benchmark, said Simmons, which are global growth, interest rates, the oil price, and sterling’s health.
Recent highs for the FTSE this year are "driven by more resilient growth than expected and hopes that the peak of the rate-hiking cycle is close", she said.
Simmons also highlighted the index's forward earnings multiple still historically very low and "attractive 4% dividend yield, which will be increasingly important to total returns in the coming years of more moderate equity returns, in our view".
Hollands agreed that UK equities look “incredibly cheap” on a forward earnings multiple of 10.7 times that is low on longer-term trends and one of the widest discounts to the rest of the world “in living memory”.
“With an abundance of exposure to energy, commodities, consumer staples and healthcare companies, the FTSE 100 looks well placed for the current environment,” he said.
On average, analysts forecast FTSE 100’s aggregate pre-tax income in 2023 will exceed that of 2017 by 71% and that dividend payments will set a new all-time high and come in 6% above 2017, when the index reached what was then its closing high of 7,877.
The Footsie outlook is "fairly volatile for the coming weeks", Simmons said, predicting a "moderate move higher by year-end as markets look forward to lower rates and inflation, and a return to earnings growth in 2024 [...] on the cards".
UBS forecasts the FTSE 100 will reach 8,300 by the end of December 2023.