Will the FTSE 250 keep rising after interest rates are held at 0.1%?
At 23,540 points today, the FTSE 250 is only 2.7% below its record of 24,194 it hit on 3 September. And with the base interest rate remaining at 0.1%, it could go further.
After the 2008 financial crisis, the FTSE 250 hit a low of 6,049 points on 27 February 2009. Over the next 11 years, it rose 260% to 21,780 by 21 February 2020. Then the pandemic-induced stock market mini-crash hit, and the index fell to 13,593 by 20 March, losing 38% of its value in a month.
Since then, the FTSE 250 steadily recovered to a record high of 24,194 by 3 September 2021, before dipping to 22,468 in October. But with fears of a new winter lockdown receding, while interest rates are kept at record lows, the index has recovered to 23,540 points today.
And unlike the FTSE 100, the FTSE 250 has surpassed its pre-pandemic highs. Moreover, it’s currently 19% higher than its five-year average of 19,781.
Where do you think the FTSE 250 will go next?
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*Based on revenue excluding FX (published financial statements, June 2020).
Top performing FTSE 250 stocks
The highest riser on the FTSE 250 today is Investec, which has risen 5% to 348p. The financial services firm has upgraded its earnings outlook in advance of H1 results due to be released on 18 November. Meanwhile, TI Fluid Systems is up 4% to 283p after Citigroup changed its investment rating to a buy, with a target for the stock of 320p. Q3 earnings last week has seen its share price, already up 31% this year, continue to rise.
Meanwhile, life sciences investment trust Syncona has risen more than 3% to 206p as it reports that one of its portfolio companies, Autolus, will be entering a strategic collaboration with Blackstone Life Sciences worth $250 million. Indivior is also up over 3% today, as the pharmaceutical companies’ bull run continues. It reported an improved earnings outlook last month, on the back of strong sales of its opioid addiction treatments in the USA.
And gold mining stocks Petropavlovsk and Hochschild are up 3% and 2.5% respectively, as respectable earnings combined with fears of a potential market crash drive investors to the relative safety of gold mining stocks. And as the today’s volume leader, Petropavlovsk could have further to go. However, it's worth noting that the gold spot price has dropped to $58,403/kg since its high of $65,477/kg on 27 July.
Two other FTSE 250 volume leaders to consider are Cineworld and TUI. The futures of the cinema chain and travel company are both dependent on a controlled return to economic normality. Cineworld is currently benefitting from a bonanza of blockbusters from franchises such as James Bond and Marvel. Meanwhile TUI, the largest travel company in the world, is benefitting from the reopening of tourism to the USA, and is up 1% today. But both stocks are far below their pre-pandemic highs. A continued recovery could see them both rise further, while further lockdowns could spell trouble.
FTSE 250 outlook
The FTSE 250 share index is comprised of the 101st to 350th largest companies in the UK by market cap. Meanwhile, the top 100 companies make up its older brother, the FTSE 100. And the FTSE 250 has been outperforming its blue-chip compatriot recently. That’s because while FTSE 100 stocks tend to be more stable, FTSE 250 stocks retain significant growth potential. And with the Bank of England decision to keep the base interest rate at a record low, the mid-cap index could rise even further based on the availability of cheap credit.
However, there are major headwinds coming. Inflation is forecast to hit 5% by April 2022. Both National Insurance and the minimum wage will also be increasing significantly. And corporation tax is rising from 19% to 25% in 2023. Combined with a labour shortage and supply chain crisis, these pressures could see growth stocks curtailed.
But with positive earnings results coming from multiple sectors, there could be yet more upside to come for the FTSE 250.
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