The FTSE 100 hasn’t done well. The index is lower than where it was five years ago. It’s also down considerably year-to-date, too. While its performance has been pretty disappointing, I believe there is still value in the Footsie given the quality of its components.
With that in mind, here are two events that I think could help boost sentiment and possibly send the index higher.
The resolution of Covid-19
If the Covid-19 outbreak helped send the FTSE 100 lower, I think the successful resolution of Covid-19 could help send Footsie prices higher.
With a successful resolution, economies around the world will return closer to normal and many people will be more confident about the future. If enough investors feel more confident about the future, the market could potentially give the FTSE 100 a higher valuation in my opinion.
In terms of how the world might achieve a resolution, most scientists think the world would need a safe and effective vaccine. In terms of vaccine news, several companies are pretty close. For example, both Moderna and Pfizer have vaccine candidates in late-stage trials. Given the data over potential vaccines so far, the experts are pretty optimistic. Operation Warp Speed’s chief adviser, Moncef Slaoui, recently said, “It’s not a certainty, but the plan — and I feel pretty confident — should make it such that by June, everybody could have been immunized in the U.S.“.
If the world does a better than expected job in terms of vaccine efficacy, manufacturing, and distribution, I think there’s a chance that the world can return to ‘business as usual’ faster than expected and that could be good news for the stock market too.
Faster than expected global economic growth
Another factor that I believe could help boost the FTSE 100 is potentially faster than expected global economic growth.
Given all the fiscal and monetary stimulus that governments have spent, there is a chance that the world grows faster than expectations.
In such a case, I think the FTSE 100 could go higher because many of the index’s components are economically sensitive.
In the energy sector, FTSE 100 stocks such as BP or Royal Dutch Shell are two examples in my view. If economic activity increases considerably faster than expected, I think demand for oil could also rise along with it and potentially help oil prices. Higher oil prices would likely mean more cash flow for oil giants, all else being equal.
Other sectors could benefit too. In the consumer sector, faster economic growth could benefit consumer staples such as Unilever through more discretionary consumer spending power.
In the financial sector, a stronger economy could mean more loan demand and potentially lower defaults, which could be good news for global banking giants like HSBC or Standard Chartered.
The post I think these 2 events could send the FTSE 100 higher appeared first on The Motley Fool UK.
Jay Yao has no position in any of the shares mentioned. The Motley Fool UK has recommended HSBC Holdings, Standard Chartered, and Unilever. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2020