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The FTSE 100 index has staged a mild recovery in the past few weeks as investors predict a change of tune by the Bank of England (BoE) and the Federal Reserve. The blue-chip index rose to a high of £7,721 last week, much higher than last month’s low of £7,276.
FTSE 100 vs S&P 500 vs CAC 40
The main driver for the FTSE 100 index was the rising hopes that the Fed and BoE will start cutting rates in 2024. The Fed confirmed this view last week when its dot plot pointed to three cuts.
On the other hand, the BoE remained tight-lipped about what to expect. In its statement, the committee noted that it was still concerned about inflation, which remains above that of most developed countries.
Still, economists believe that the BoE will start cutting rates in 2024 as inflation drops sharply. Those at Goldman Sachs believe that the bank will start slashing them in July and then accelerate throughout the year.
Still, the FTSE 100 index will likely continue struggling against its peers in Europe and in the United States. For one, lower interest rates will likely push investors to riskier stocks like those in the technology sector.
The FTSE 100 index does not have these stocks. Instead, its biggest companies are in industries like energy, mining, and banking. The biggest constituents are firms like Shell, AstraZeneca, HSBC, Unilever, and Rio Tinto. All these are firms that tend to have low revenue growth.
Instead, its other European peers, especially in France, have some catalysts. As I wrote on Friday, I expect luxury brands stocks like Kering, LVMH, and Hermes will continue doing well as the Chinese economy recovers.
In the United States, technology companies in the S&P 500 and Nasdaq 100 indices will likely do well as a risk-on sentiment prevails.
Worse, there are signs that foreign investors are abandoning UK stocks and the trend could continue towards the election. In a statement, an analyst told Bloomberg:
“It’s difficult to find buyers for UK equities. There are constant outflows from UK equity funds, so fund managers are having to sell, depressing the market even more.”
Therefore, there is a likelihood that the FTSE 100 index will remain under pressure in 2024 as there is no clear catalyst.
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