FTSE 100 retakes 7,400 after Feb 2020, set to break pre-Covid peak

Written by Mr. Kunal Sawhney, CEO, Kalkine Media

UK shares have been largely rising since the third week of September, extending the rally on the back of market-wide optimism led by the better-than-expected corporate results and slowly improving business prospects for the domestic enterprises ahead of the Christmas season.

The benchmark index FTSE 100 on Friday, 12 November, retook the psychological level of 7,400 for the first time since February of 2020. According to the data available with the London Stock Exchange, the index has registered an intraday peak of 7,402.68, before sliding into negative territory as some of the heavyweight shares cracked.
Shares of the market capitalisation leader pharmaceutical major AstraZeneca shed nearly 6% in the opening deals, functionally dragging the headline index into the negative zone after the Cambridge-headquartered corporation provided a gloomy guidance for the upcoming quarters, while announcing the July-September results.

FTSE reclaiming 7,400 certainly paves the way for newer highs in the upcoming sessions as the enterprises scale up their commercial operations, the factor that can provide a promising push to the full year revenues, as well as the earnings.

However, the persistent industry-wide challenges still pose a threat to the profitability of a large section of enterprises as businesses are finding it very difficult to fill up the vacant position with the skilled workers due to acute shortage of human capital.

The elongated course of pandemic-related restrictions, country-wide lockdowns and other social distancing mandates forced many businesses to either operate in a curtailed manner, or to shut their entire operations, as a result of which many international workers have left the country due to the condition of ‘no business, no pay’ and reduced earnings.

However, the government-backed furlough scheme for an extended duration helped the corporations to retain the essential staff during the period of minimal revenues but it fell short to address the industry-wide concerns as expenses kept rising due to higher medical bills, cost of transport, utility bills and fuel costs.

Before today, February 2020 was the last session when the market index touched a level above 7,400. As per the historical data, the leading average of largest corporations by market capitalisation recorded an intraday high of 7,403.92 on 24 February 2020. On 12 November 2021, it scaled a fresh 20-month high of 7,402.68, slightly below the February highs, before falling to an intraday bottom of 7,342.61.

As compared with the Covid bottoms, the index has staged a meaningful comeback but it still lags behind when compared to the growth and recovery seen in America’s Dow Jones Industrial Average, Germany’s DAX, France’s CAC 40, Japan’s Nikkei 225 and the tech leader Nasdaq Composite.

On 16 March 2020, the market index touched a multi-year bottom of 4,898.79. Since then, the prestigious pack of 101 components has only managed to gain a little more than 51%, while most of the European, American and Asian stock barometers have returned 70-90% in the corresponding period with the Nasdaq Composite rising as much as 130%.
The subdued growth of London equities has been due to a number of factors including the three nation-wide lockdowns, extended set of restrictions, border control measures, complete shutdown of many businesses, restricted local, as well as international travel, so-called short-lived repercussions faced by the domestic exporters due to the newly inducted cross-border arrangement between the government of the United Kingdom and the European Union.

The plan of phased easements provided a comprehensive boost to the domestic shares, but the widespread resurgence of Covid-19 cases linked to the Delta variant again derailed the path of recovery as the Downing Street administration was forced to delay the stage 4 of reopening by a month, in order to increase the number of double-jabbed people in the meantime.

With FTSE 100 back around 7,400, the market participants are contemplating the possibilities of further highs in the upcoming term. The continuous support from different sectors can certainly steer the index over the five-year high level of 7,903.50, also its all-time high.

On the contrary, the continuing difficulties including higher input prices, inflationary troubles, shortage of semiconductor chips, higher fuel prices, dearth of human capital overseeing various supply chain and logistic functions, uncertainty around Covid-19 activity and inadequacy of workers in services industry, mainly the consumer facing businesses have taken a huge toll on overall economic recovery.

However, the Covid-19 activity across the nation has apparently moderated in the recent week ending 11 November. According to the data publicised by the UK Health Security Agency, Covid-19 activity reduced on a national level with individuals from 10 to 19 years contracting infection at a weekly rate of 561.6 per 100,000 people, the highest rate of infection as far as the age group is concerned.

The lowest weekly rate of 82 per 100,000 individuals has been recorded for people over the age of 80 years. The rate of hospitalisation has also reduced to 7.44 from 8.75 per 100,000 in the previous week as vulnerable patients above the age of 80-85 years continue to seek immediate medical attention.

Going forward, the index seems adequately equipped to breach the previous record high by the middle of 2022. The level of Covid-19 activity will continue to handhold the equities unless the drugmakers propose a highly effective vaccine or therapeutic treatment that can completely nullify the effect of Covid-19 (SARS-CoV-2) virus.

Investors can witness a level over 7,600 by the end of this year, given the Downing Street administration manages to boost British exports to various EU, as well as non-EU regions, effectively narrowing the trade deficit in the upcoming months. The decreasing level of unemployment, sharp improvement in the retail sales, substantial restoration of workforce, overhaul of supply side functions and accelerated pace of economic recovery can collectively stimulate the London equities.

About Lisa Baker, Editor 2423 Articles
Lisa Baker is the Editor of Always Finance, and writes about Business, Finance Technology and Healthcare. Lisa is also the owner of Need to See IT Publishing.