FTSE 100 breaks out to fresh record high: where to next?
The UK benchmark index pushed to new record territory on Friday, powered by upbeat insurer results and resilient economic data supporting rate cut expectations.
FTSE 100 extends summer rally to fresh peaks
The FTSE 100 pushed to new record territory on Friday, extending a summer rally powered by firm risk appetite, resilient UK macro data and a clutch of upbeat blue-chip results. The latest leg higher came as investors leaned into a friendlier global rates backdrop and welcomed evidence that Britain's economy is still expanding.
The export-heavy benchmark overcame lingering domestic worries to set another intraday peak around 9,222, underscoring how global momentum continues to buoy UK equities despite concerns about the domestic economic outlook.
This breakthrough to fresh highs validates the improving sentiment toward UK assets that has developed over recent months, as investors have begun to look beyond Brexit-related concerns and focus on underlying corporate fundamentals.
The record-breaking performance comes amid a broader resurgence in risk appetite, with global equity markets benefiting from expectations of central bank policy support and resilient corporate earnings across multiple sectors.
Insurance sector leads the charge higher
Insurers did much of the heavy lifting after Admiral and Aviva delivered well-received interim numbers on Thursday. Admiral jumped after posting a record first-half pre-tax profit - widely reported around £521 million, up roughly 69% - while Aviva rose on a 22% increase in group operating profit and a higher dividend.
These results fed through to index-level gains and improved sentiment toward the broader insurance sector, which has faced challenges in recent years from competitive pressures.
The strength in insurance companies reflects both improved underwriting conditions and the benefit of higher interest rates on investment income, creating a more favourable operating environment for the sector.
Admiral's exceptional profit growth demonstrates how well-positioned insurers can capitalise on improving market conditions, while Aviva's dividend increase signals management confidence in sustained earnings momentum.
UK economic data supports rate cut expectations
Macro underpinnings also helped drive the index higher. Preliminary figures showed the UK economy grew 0.3% quarter-on-quarter (QoQ) in the second quarter (Q2), beating expectations and reinforcing the view that the Bank of England (BoE) can move cautiously as inflation cools.
This keeps the door open to rate relief without threatening growth, providing a positive backdrop for equity markets seeking the benefits of easier monetary policy without the economic weakness that might necessitate emergency intervention.
The combination of steady growth and moderating inflation creates the "Goldilocks" scenario that equity investors favour - an economy that's neither too hot nor too cold, allowing for supportive monetary policy without recession fears.
That mix, alongside a constructive global equity tone, supported both cyclicals and defensives alike, demonstrating the broad-based nature of the current rally.
Broad-based sector participation drives gains
At the sector level, gains in financials dovetailed with strength in selected industrials and commodity names, while deal news and infrastructure moves added stock-specific catalysts. Centrica's LNG terminal acquisition aided broader energy-market sentiment even as oil majors fluctuated.
The breadth of participation across different sectors suggests that the rally has solid foundations rather than being driven by momentum in just a few areas, which often characterises more fragile market advances.
Financial sector strength reflects both the insurance results and expectations that UK banks could benefit from any interest rate normalisation that improves net interest margins while maintaining asset quality.
Industrial and commodity stocks have benefited from improved global growth expectations and infrastructure spending commitments, while deal activity suggests that corporate confidence is returning to levels that support strategic transactions.
Valuation appeal attracts international flows
The interplay of robust dividend streams, sizeable buybacks and comparatively attractive UK valuations versus the US continues to entice flows into London's large-cap cohort. This valuation discount has become a key attraction for international investors seeking exposure to quality companies at reasonable prices.
UK shares continue to offer compelling dividend yields compared to other major markets, providing income-focused investors with attractive returns while they wait for capital appreciation.
The combination of undervaluation and improving fundamentals creates a potentially powerful catalyst for sustained outperformance, particularly if international investors continue to rotate capital toward cheaper markets.
Share buyback programmes across multiple FTSE 100 companies provide additional support for share prices while demonstrating management confidence in their businesses' prospects and cash generation capabilities.
Momentum sustainability depends on key factors
With the FTSE 100 now up by double digits year-to-date, investors will watch whether earnings upgrades and easing rate expectations can sustain momentum into the autumn. The seasonal pattern for UK equities typically sees some challenges in September and October.
FTSE 100, Dow Jones, S&P 500 and Nikkei 225 year-to-date comparison chart
Near-term focus falls on incoming UK, European and US manufacturing and services PMIs and inflation as well as consumer confidence data and central-bank signals, with any deviation from expected policy paths potentially impacting the risk-on sentiment that has supported the recent rally.
The sustainability of international capital flows into UK equities will be crucial, as domestic investor appetite has historically been insufficient to drive sustained rallies without overseas participation.
FTSE 100 technical analysis
The FTSE 100’s rally to a new record high above the 9,200 mark has so far seen no follow through but remains above its April-to-August uptrend line at 9,153 and, more importantly, Thursday’s 9,133.9 low.
While the next lower early August low at 9,027.1 underpins, the 161.8% Fibonacci extension of the October 2022-to-February 2023 6,707.62-to-8,047.06 advance, projected higher from the 7,206.82 March 2023 low, at 9,374.03 represents a possible technical upside target.
FTSE 100 daily candlestick chart
Since this week’s record high around the 9,222 mark has been accompanied by negative divergence on the daily Relative Strength Index (RSI), the risk of at least a short-term swift bearish reversal being seen is present.
A reversal and fall through the 7 August low at 9,075.3 would be the first nail in the coffin with a drop through the early August trough at 9,027.1 confirming such a trend reversal.
In such a scenario the area between the March high and June low at 8,909-to-8,696 may be revisited.
Sector rotation opportunities emerge
The broad-based nature of the FTSE 100's advance creates opportunities across different sectors, though the performance leadership may shift as economic conditions and policy expectations evolve.
Banks could benefit further if rate cut expectations prove premature or if economic growth proves more resilient than expected, supporting both lending demand and credit quality metrics.
Commodity-exposed companies within the index may face volatility from global trade tensions and economic data, though infrastructure spending commitments provide fundamental support for materials demand.
Consumer-facing companies are likely to benefit from any sustained improvement in UK economic confidence, though their performance will depend on whether gross domestic product (GDP) growth translates into improved consumer spending patterns.
Trading opportunities in record-breaking FTSE 100
For investors looking to capitalise on the FTSE 100's momentum or position for potential continuation of the rally, several approaches merit consideration.
- Research the fundamental drivers behind the FTSE 100's performance, including corporate earnings trends, monetary policy expectations, and valuation metrics.
- Consider how different sectors within the index might perform under various economic and policy scenarios.
- Open an account with IG by visiting our website and completing the application process.
- Access FTSE 100 exposure through our platform, including both index products and individual company shares.
- Implement appropriate risk management given the potential for volatility around economic data and central bank decisions.
CFD trading and spread betting provide flexible approaches for gaining exposure to FTSE 100 movements, allowing positions on both rising and falling markets.
For those with longer-term investment horizons, share dealing offers direct ownership of FTSE 100 companies, many of which offer attractive dividend yields alongside capital appreciation potential.
The combination of solid corporate delivery, steadier macro prints and a supportive global backdrop has given London's benchmark the thrust it needed to vault past its previous ceiling. Whether this momentum can be sustained will depend on continued execution across these multiple supportive factors.
The current environment represents a confluence of positive factors that have created the right conditions for UK equity outperformance, though investors should remain vigilant for any signs that these supportive conditions might be changing as economic and policy developments unfold.
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