FTSE 100: record-breaking? Hardly

The FTSE 100 would have to hit 10,000 to reach any meaningful new high, says Merryn Somerset Webb. Clearly, that's some way off.

Newspapers usually don't bother putting news about the stockmarket on their front pages unless something really exciting happens. This week, it seems something really exciting did happen. "Shares rocket to record highs," said the Daily Express.

"FTSE 100 hits all-time high," said The Daily Telegraph and Daily Mail. "Like it's 1999: soaring FTSE at highest level for 16 years," said The Independent. Even the usually sensible Times wasn't immune to the overexcitement: its headline on the matter was "investors' delight as shares smash record".

This is, of course, all nonsense. The FTSE 100 is a nominal index, not an inflation-adjusted index. Adjust for that and if you want the numbers to mean anything relative to real wealth, you have to and the index is nowhere near its past highs. In 1999 it hit 6,930. On Tuesday this week it ended the day at 6,949.

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But in the intervening 16 years, prices in the UK as measured by the Retail Price Index (RPI) have risen by more than 50%. So to beat its all-time high in any way that actually matters, the index would now need to be over 10,000. And that, clearly, is some way off.

Still, that doesn't mean that investors who put money in a tracker fund at the market's peak in 1999 haven't broken even: add dividends in, says Adrian Lowcock of Axa Wealth, and the stocks in the FTSE 100 index have returned 66% in nominal terms since the peak a real return of just over 1% a year. That's better than nothing, of course. But as the Financial Times says, perhaps we should "keep the champagne on ice".

So what next? Matthew Lynn looks at the psychological effects the post-1999 bear market has had on those in their 20s and 30s he reckons their miserable experiences will be a barrier to the creation of a new "euphoric bubble" in the next five years or so. However, he also notes that returns from the UK should be "perfectly respectable".

UK stocks aren't expensive: on a cyclically adjusted price/earnings (Cape) basis, they are knocking around the long-term average of 15 times. There's some insurance in that.

Those looking for something cheaper might consider the Gabelli Value Trust, or Brazil, where stocks have been ground down to a Cape of only ten times, making them some of the cheapest in the world.

Also of interest to long-term investors (which we assume most of you are) should be water: drought is nasty, but the threat of it also drives the kinds of innovations we want to invest in.

Finally, hang on to your gold amid all the "all-time high" thrills, remember the US is overvalued; global growth is pretty pathetic; the Greek situation is impossible to resolve; and global monetary policy is as bonkers as ever. There could be another global crash any day

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.