FTSE 100 hits record high: the stocks that made it happen

Banks and consumer-focused stocks served up this week’s record for the FTSE 100 index after investors revisited the London market’s value credentials at a time of US jitters.

Since hitting a four-week low on 16 April, the UK’s premier shares index has outperformed every major global benchmark apart from the Hang Seng index.

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The 3% advance, which this morning took the top flight to an intraday all-time high of 8,076, compared with declines of 3% for the Nasdaq Composite and Tokyo’s Nikkei 225 due to concern over the lofty earnings outlook for semiconductor stocks.

Signs that it will take the US longer than the UK to cut interest rates also helped as sterling weakness typically benefits the FTSE 100’s band of overseas earning stocks.

The past week’s progress pushed the blue-chip index above its previous record in February 2023, albeit weeks after benchmarks in Europe and Wall Street had set their all-time highs.

Source: SharePad. Data as at afternoon 23 April 2024.

The dominance of energy, materials, financials, pharma and some large consumer goods and services companies has hampered the FTSE 100’s relative recent performance.

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However,  it boasts one of the most attractive dividend yields compared to other countries and asset classes. In fact, the UK yield sits slightly higher than UBS’ year-end target of 4% for the US 10-year bond yield.

The bank sees the FTSE 100 trading in a 7,700-8,500 range in the coming six months, noting that PMI economic indicators are on the path to improvement. It forecasts earnings growth of 7% for the FTSE 100, driven by both margin expansion and revenue growth and representing a bigger improvement than the consensus forecast of 2%.

UBS said on Friday: “Historically, the UK equity market has stronger returns in recovery and expansion phases of business cycles. So this cyclical uncertainty has constrained performance and left the UK as one of the weakest global equity markets in recent years.”

However, it added: “We believe UK domestic companies offer lucrative investment opportunities, particularly when you home in on the high-quality value stocks in the market.”

Optimism over the UK economic outlook was underlined on Monday when analysts at US bank Jefferies upgraded price targets on FTSE 100-listed retailers Marks & Spencer Group (LSE:MKS), Next (LSE:NXT) and Tesco (LSE:TSCO).

They said UK valuations were “unfairly depressed” versus the big consumer names in Europe and the US, adding that their cash flow modelling showed people would see a “substantial disposable income recovery” over the next year.

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The bank’s support helped extend the past week’s run for M&S and Tesco to 5%, but Jefferies sees much further to go based on price targets of 310p and 350p respectively.

Investor demand over the past week has also focused on the value of the travel sector after gains of 13% for British Airways owner International Consolidated Airlines Group SA (LSE:IAG) and 8% for easyJet (LSE:EZJ).

The lenders Barclays (LSE:BARC) and Standard Chartered (LSE:STAN) have led the recovery of the banking sector amid greater confidence in the sector’s profit and capital return outlook, particularly with markets now pricing in fewer interest rate cuts in 2024.

As we reported last week, the UK’s three major domestic banks trade on 6.4 times 2025 forecast earnings compared with their longer run 9.4 times average forward earnings multiple or the European equity market on 13 times.

Lloyds Banking Group (LSE:LLOY) kicks off the first-quarter reporting season tomorrow, followed by Barclays on Thursday and NatWest Group (LSE:NWG) on Friday.

10 biggest FTSE 100 risers since 16 April 2024

Source: SharePad. Data as at afternoon 23 April 2024.