FTSE 100 forecast: Will FTSE 100 extend gains into 2023?
The FTSE 100 Index (UK100) posted seven straight weeks of gains in October and November 2022 after former UK finance minister Kwasi Kwarteng's mini-budget, which analysts said threw “money at an inflation problem”, was scrapped.
The UK benchmark index rose as much as 13.5% from a more than 18-month low of 6,705 points hit on 13 October 2022.
What is expected of the FTSE 100 Index going forward? Let us read about the latest FTSE 100 news, the index’s historical performance and factors shaping the FTSE 100 forecast for 2023 and beyond.
About: What is the FTSE 100?
The FTSE 100 is a blue-chip index that tracks the performance of the 100 largest companies listed on the London Stock exchange (LSE). It is also referred to as the ‘Footsie’.
Alongside the FTSE All-Share index and the FTSE 250 Index, the Footsie is one of the leading benchmark indices in the UK, widely regarded as the best performance indicator of large-cap UK companies.
The FTSE 100 is a market cap-weighted index, which means price movements of an index component with higher market capitalisation will have a larger effect on the index than a smaller market-cap company.
Constituents of the FTSE 100 are ranked by their full market capitalisation. Any company that falls below the 110th position is automatically deleted from the FTSE 100. Once a company leaves the index, the highest ranking company on the FTSE 250 will enter the FTSE 100 Index.
As of 30 November 2022, oil and natural gas giant Shell (RDS) was the biggest constituent of the FTSE 100 with an index weight of 9.1%. Pharmaceutical firm AstraZeneca (AZN) was second on the list with an index weight of 8.4%.
Dove soap seller Unilever (ULVR) finished the top three with an index weight of 5.4%. Multinational bank HSBC and oil explorer BP (BP) followed with index weights of 5.2% and 4.7%, respectively.
Among sectors, energy companies had the highest index weight in the Footsie at 11.9%. Energy, healthcare and financial services sectors were the highest-weighted sectors, representing over 30% of index weightage.
The FTSE UK indices are managed by FTSE Russell, a wholly-owned unit of the London Stock Exchange (LSE).
“The FTSE constituents are reviewed every quarter. At each review some companies will exit and other will enter, this impacts share price and is a busy day of trading,” said the LSE on its website.
Investors dump UK assets in September
Back in March 2020, the FTSE 100 performance suffered a hit, with the index falling to 4,785 points, its lowest in nearly nine years, due to the Covid-19 pandemic. The FTSE 100 recovered strongly to close 2020 at 6,484 points – a jump of more than 35% from the March lows.
By February 2022, the Footsie surged to a two-year high of 7,691 points. However, the UK benchmark index fell short of scaling its all-time high of 7,904 in late-May 2018.
Since the start of the Russian-Ukraine war and global monetary tightening cycle in early 2022, the FTSE 100 index has fallen over 7% year-to-date (YTD), as of 30 September.
Much of the Footsie’s losses came in September 2022 after the UK government under former prime minister Liz Truss announced tax cuts and energy price freeze with the aim of stimulating economic growth in the UK.
However, financial markets reacted negatively to the news and dumped UK assets in late September. The FTSE 100 index posted a monthly loss of about 4.9% in September, closing the month at 6,893.
Meanwhile, the British pound fell more than 6% against the US dollar (GBP/USD) in September 2022, its worst month in over six years.
By 13 October 2022, the Footsie had fallen to 6,705 points, its lowest since March 2021.
The FTSE 100 index made a comeback from its lows following the appointment of Rishi Sunak as the new UK prime minister.
The Footsie closed 4% higher in October and 7% up in November. As of 8 December 2022, the index was trading at around 7,484 points.
Further developments in the UK economy will remain the key driver of the FTSE 100 forecast in the near future.
UK assets recover from Lizz Truss mini-budget shock
The UK government had announced a new economic strategy to boost its economy through tax cuts and energy price caps under former prime minister Lizz Truss.
Investors dumped UK assets – UK government bonds, British pound and UK equities – in September on concerns about the huge cost of the economic strategy.
According to BofA Securities, the energy subsidies would have cost the UK government £60bn for the first six months and predicted the UK government would lose £45bn annually by 2026 on implementation of the tax cuts.
Meanwhile, BlackRock Investment Institute in a 26 September note said: “The UK government revealed a fiscal splurge on Friday that effectively throws money at an inflation problem, in our view.”
However, Sunak’s administration was quick to scrap the cuts to dividend tax rates and income tax implemented by the former government. The new government also scaled back on the planned energy cap of about £2,500 for households.
Looking forward, fears of a recession in the UK were a key concern for investors. The Bank of England said in its November policy report that it expected the UK economy to be in a recession for a “prolonged period”, with headline inflation rates at more than 10% in the near term.
The central bank also said that it did not expect restrictive monetary conditions to end any time soon, with UK interest rates seen peaking at 5.25% in the third quarter of 2023, from 3% as of December 2022.
FTSE 100 forecast for 2022 and beyond
JP Morgan’s FTSE 100 predictions from late November set a year-end target of 7,300 points for the UK benchmark index.
In its FTSE 100 analysis, the investment bank saw the index companies’ earnings per share (EPS) growth falling from 169.9% in 2021 to 25.1% in 2022. The EPS growth was seen slipping to negative territory of -2.8% in 2023 and recovering to 2% in 2024.
London-listed companies in JP Morgan’s list of top European picks were BP (BP), Glencore (GLEN), Rolls Royce (RR), Marks & Spencers (MKS), Smith & Nephew, Lloyds Banking Group (LLOY), BT Group (BT) and ITV (ITV).
In its FTSE 100 forecast for 2023, Jefferies said on 7 December:
Jefferies rated British banks Lloyds Banking, Barclays (BARC) and NatWest Group (RBSI) as ‘buys’ among large-cap stocks in the FTSE 100 index. Other ‘buy’ rated stocks included Shell and Unilever.
Meanwhile, data firm Trading Economics said in its UK100 forecast that it saw the index trading at 6,759 points in 12 months’ time from 8 December 2022. Trading Economics did not give any FTSE 100 forecast for 2025 or FTSE 100 forecast for 2030.
It is important to note that FTSE 100 predictions from analysts can be wrong. Predictions shouldn’t be used as a substitute for your own research.
Always conduct your own due diligence. Remember that your decision to trade or invest should depend on your risk tolerance, expertise in the market, portfolio size and goals. And never trade money that you cannot afford to lose.
FAQs
Why has the FTSE 100 been going up?
The FTSE 100 Index (UK100) posted seven straight weeks of gains between mid-October and end-November 2022 following the scrapping of former UK finance minister Kwasi Kwarteng's mini-budget which analysts said threw “money at an inflation problem”.
How high can FTSE 100 go?
Data firm Trading Economics said in its UK100 forecast that it saw the index trading at 6,759 points in 12 months’ time from 8 December 2022. Note that predictions can be wrong.
Is FTSE 100 a good investment?
The FTSE 100 index is a blue-chip index that tracks the performance of the 100 largest companies listed on the LSE. Whether it’s a suitable investment choice for you would depend on personal circumstances such as your risk tolerance, expertise in the market, portfolio size and goals. You should always conduct your own due diligence before investing. And never invest money you cannot afford to lose.
Will FTSE 100 go up?
Data firm Trading Economics said in its UK100 forecast that it saw the index trading at 6759 points in 12 months time from 8 December 2022. Note that their predictions can be wrong.
Should I invest in FTSE 100 ?
Your decision to invest in an asset should depend on your market experience, risk tolerance, asset research and portfolio goals. Never trade money that you cannot afford to lose, and always conduct your own due diligence.
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