UK’s FTSE 100 Soars to Record Levels Despite Domestic Issues – Key Drivers Explained

As the market closed on Wednesday, the FTSE 100 share index closed at 8,354.05 points – its highest-ever level. So, if the UK is struggling, why is the UK stock market doing so well?

FTSE 100 Isn’t the Economy

Image Credit: Shutterstock / koonsiri boonnak

To begin with, the FTSE 100 isn’t a measure of the UK economy. It’s a market where traders, both personal and professional, can buy and sell shares in the 100 biggest companies registered in the UK.

Investor Value Businesses Based on Various Factors

Image Credit: Shutterstock / Life and Times

A business’s share price is impacted by many variables. Profitability, sentiment, dividend payments, market share changes, new products, currency denominations, etc., all play a part.

The Weak Pound Helps

Image Credit: Shutterstock / Milosz Maslanka

The bit the government won’t want to hear is that the weak pound is a huge help to the FTSE. Many businesses on the market trade globally, making much of their money in dollars. When they convert these dollars into GBP, they get more pounds for their dollars, increasing profits. 

Range of Companies Benefit Depending on Different Markets

Image Credit: Shutterstock / fizkes

The airlines have had a good spell recently. Increased flight bookings leading into the summer, coupled with the reduction in costs thanks to the oil price reduction, have helped them significantly. 

Lower Interest Rates Can Help

Image Credit: Shutterstock / William Barton

Some traders are speculating that the Bank of England will soon reduce interest rates, so they are buying up shares ahead of the fresh money entering the market. 

Why Does Interest Rates Impact Stock Markets?

Image Credit: Shutterstock / Gorodenkoff

As interest rates go down, borrowing costs go down. That means more people have surplus cash to invest into markets, increasing share prices.

Investors Looking for Best Returns

Image Credit: Shutterstock / Ground Picture

That’s not all, though. As interest rates drop, returns on cash in the bank are lower. This triggers investors to move money in search of better returns, which are often found in the stock market.

FTSE Dividend Rates

Image Credit: Shutterstock / Sutthiphong Chandaeng

Many companies are paying dividends far north of 5% – a figure you’ll struggle to match in a standard bank account. There’s also the rise in share price, which can take returns to double figures. 

Banks to the Rescue

Image Credit: Shutterstock / AmbrosiniV

The higher interest rates have helped the banking sector, and many global banks are registered on the UK Stock Exchange. Higher charges from interest has seen the likes of HSBC, Lloyds and Barclays have bumper years.

Can the Government Take Credit for Markets?

Image Credit: Shutterstock / Salivanchuk Semen

You can certainly blame the government for helping the pound drop dramatically in value, which has helped businesses that earn in dollars! However, they can’t take credit for the general rise in value. 

Investment Director Explains How Currency Value Impacts Stock Returns

Image Credit: Shutterstock / Bacho

Russ Mould, Investment Director at AJ Bell, says: “The FTSE 100 continues to forge to new all-time highs with sterling weakness providing the index with a bit of a kicker. A fall in the domestic currency is typically helpful to the FTSE 100 because it boosts the relative value of its dominant overseas earnings.”

The Federal Reserve Might Help Too

Image Credit: Shutterstock / Paul Brady Photography

America’s central bank, the Federal Reserve, might also help the FTSE. The American economy is booming, so all eyes are on their next move. If they decide to increase interest rates to stem growth, investors might move money away in search of better returns. 

Currency Strength Helps Change Market Fortunes

Image Credit: Shutterstock / Valeri Luzina

AJ Bell’s Russ Mould says: “Currency traders are betting against the pound ahead of the Bank of England’s latest meeting tomorrow, amid a growing expectation it will cut rates earlier than counterparts at the US Federal Reserve.”

Will Markets Continue to Rise?

Image Credit: Shutterstock / Ground Picture

Investors generally believe the stock market will rise for at least the coming year. We’re in an election year, so expect the government to offer as many financial sweeteners as it can to voters.

How Do Government Giveaways Help Stock Markets?

Image Credit: Shutterstock / Salivanchuk Semen

This extra money often finds itself in the hands of the investing classes, which is put into stock markets. More money invested sends the stock market higher, boosting returns. 

COVID Money a Classic Example

Image Credit: Shutterstock / bluedog studio

During the pandemic, the government gave the population a lot of cash.

The post UK’s FTSE 100 Soars to Record Levels Despite Domestic Issues – Key Drivers Explained first appeared on 365 News.

Featured Image Credit: Shutterstock / Pavel Rumme.

Leave a Comment