FTSE 100 eclipses previous record

There was a second eclipse late on Friday as the FTSE 100 rose above 7,000 for the first time and hit a new record high. The benchmark stock index closed the day at 7,022.51, having set a new intraday record of 7,024.21 during the afternoon session.

The 7,000 level has long been seen as a psychologically important one for the market, and some believe it will now press higher, having broken through this significant barrier.

The FTSE 100 had already set a couple of new all-time highs in recent weeks, having finally surpassed the previous dot.com bubble high of 15 years ago. The index has risen almost 7% since the start of the year.

Helped by the monetary policies of central banks around the world, notably the recent launch of quantitative easing by the European Central Bank, and with positive news on interest rates in the US and UK, stock markets in Europe have also been doing well. The Cac 40 in France is up c.19% already this year, whilst the Dax in Germany, which includes reinvested dividends, is up more than 23%. The S&P 500 and the Dow Jones Industrial Average have also notched up record highs over the last two years.

Obviously, back in 1999 when the previous record was set, it was followed by the tech crash but the composition of the FTSE100 is very different today, with just four ‘tech’ firms rather than 14 and with more than 70% of its earnings coming from overseas. In terms of corporate profitability, looking at price-to-earnings ratios, shares in 1999 looked quite expensive whereas today they are looking neither particularly cheap nor particularly expensive.

For investors too, returns can be boosted further than the headline rate by using the compounding effect of reinvesting dividends.

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