FTSE 250 – headed for 20,000?

Dow’s 21,000 stole all the limelight, but in the UK the FTSE 250 is headed towards its own big round number, having clocked up a string of all-time highs. 

Canary Wharf
Source: Bloomberg

Investors in the FTSE 100 have enjoyed a 3.4% rise in the value of the index since the beginning of the year. But that pales in comparison to the returns for the FTSE 250. The mid-cap index is now 9.6% higher since 1 January, and has been in positive territory all year. By contrast, as recently as mid-April, the FTSE 100 was in negative territory, with only a late rebound rescuing the index.

The mid-cap 250 touched an all-time high back in October 2016. Since the beginning of the year, it has seen a new record high practically every week, and is now within touching distance of 20,000. The index has been driven higher by improved UK economic data. Although this has dropped back of late, with GDP growth for Q1 being just 0.3%, and retail sales weakening in the first three months of the year, PMI figures from the services, manufacturing and construction remain strong.

While sterling weakness helped the FTSE 100 in the aftermath of the Brexit vote, the mid-cap index has been boosted of late by a relative improvement in sterling, which has boosted the performance of domestic companies and made them more attractive to investors relative to their bigger cousins in the FTSE 100.

Since December, the FTSE 250 has been firmly within an upward rising channel, with dips at the end of January and in March bringing out buyers once again. Until this is broken, it will continue to serve as a useful guideline for investors. With the price currently heading towards the top end of the channel, a pullback could be a possibility, which would suggest a drop back towards 19,500 (just a 2% fall). 

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