The FTSE 100 is doing moderately well – can this continue?
The FTSE 100 performed well and better than expected in the first quarter of 2022. John Stepek looks at what has changed.


The first quarter of 2022 is over.
It's a natural point at which to take stock of what's happened in markets.
It's also a completely arbitrary point, of course. Just because markets have been doing something over the past three months doesn't mean they'll keep doing it.
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Yet, arbitrary or not, taking a snapshot of markets can give us an idea of what the overall narrative is at any given time.
And it's very clear from the first quarter of this year that the big stories in investment are now dramatically different to the ones that drove the post-2009 bull market...
The FTSE 100 is doing well – what's gone wrong with the world?
One of the most obvious changes in the investment environment is that the UK's headline stock market index isn't clutching tightly to the wooden spoon for once. That's quite the shift.
During the first quarter of 2022, the FTSE 100, which comprises the 100(-ish) biggest (in terms of market capitalisation) companies listed on the London Stock Exchange, gained 1.8%, notes George Steer in the FT.
You may not be cracking open the champagne on that sort of gain (certainly not with inflation sitting at its present levels). And if you'd been more adventurous, investing in Brazil say, you'd be up a whopping 34.3%, says Morningstar.
But it's rather a lot better than if you'd invested in most other major developed global stock markets – or British ones for that matter.
The FTSE 250, which comprises the next 250(-ish) companies, lost 10.6%, while the biggest companies on Aim – London's junior market - lost an even more brutal 16%.
As for international comparisons, eurozone stocks (as measured via the Stoxx 600 index) fell by 6.5%, while the S&P 500 dropped 4.9%.
There's a pretty straightforward story to tell here. The FTSE 100 has done reasonably well for two main reasons. One is that it has been the least popular developed market in the world for a long time now, so it was starting from a low base. That shunning was partly due to Brexit.
Two - which has nothing to do with Brexit – is that it is full of the sorts of stocks that everyone has hated for the duration of the post-2008 bull market. The FTSE 100 has banks (at the heart of the last bubble); miners and oil companies (hated because they're the opposite of both ESG and "digital" assets); and a distinct lack of hot tech stocks.
Oh and it's a dividend-heavy index in a world that had decided that regular payouts to investors showed that a company had run out of imagination.
So in a world where investors have decided that "value" investing is a dirty word, it's little surprise that the FTSE 100 index was hated.
Clearly that's changing now. Even before Russia invaded Ukraine, commodity and energy prices were surging. Inflation finally stopped being described as "transitory" in December last year as the Federal Reserve "retired" the word.
Meanwhile, on the other side of the equation, anything speculative (in other words, any asset where profits are a distant prospect) has struggled. "Growth" has lost its popularity. "Virtual" has become less appealing. "Expensive" is no longer a synonym for "high-quality".
This helps to explain why the US in particular – previously the world's leading stock market by far – has started to struggle. It's far more "growth-y" and "tech-y" than the FTSE 100.
The trend is clear. The rationale is pretty clear too. The big question now is: is it likely to continue?
How to invest for a continuing shift to value from growth
On the "big picture" level, a lot of this boils down to what you think will happen to interest rates, inflation and the economy over the coming year.
If you think that inflation will drop back down and that the world's central banks are going to be clear to cut interest rates, but that we'll scrape by avoiding a recession, then we could probably flip back to the good old days of growth trumping everything and everything being hunky-dory in a slightly glum manner.
If you think that inflation will persist, that central banks are caught between a rock and a very hard place, and that we might end up with the economy being dragged down by soaring living costs even as staff agitate for higher pay to compensate and countries scramble to secure scarce supplies of key resources – well, we can probably expect more of the same.
I'll admit I find scenario number two or some variation thereof the most likely option here. I would prefer a more cheerful outcome (and if wages start rising in a persistent manner, that would make me more optimistic about the economy, if not about earnings prospects).
But overall, it's hard to see how we go back to the previous "secular stagnation" scenario which sounded very gloomy but in practice, entrenched the dominance of the top performers and wasn't much of a problem as far as Wall Street was concerned.
How do you play this? We've looked at lots of ways to play lots of different commodities, from copper to silver and platinum. You could also invest in value-oriented investment trusts or those which are aimed at protecting you from inflation.
The other option is to look at a simple FTSE 100 tracker fund. It won't give you pure exposure to all of the things that will do best out of any shift from growth to value, but it is a cheap option for investing in the overall shift.
On that note, for more on the debate over passive investing and its impact on markets, you really should listen to this week's MoneyWeek podcast, in which Merryn chats to Robin Wigglesworth, FT journalist and author of Trillions, an in-depth history of index investing and its impacts. Have a listen here.
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John Stepek is a senior reporter at Bloomberg News and a former editor of MoneyWeek magazine. He graduated from Strathclyde University with a degree in psychology in 1996 and has always been fascinated by the gap between the way the market works in theory and the way it works in practice, and by how our deep-rooted instincts work against our best interests as investors.
He started out in journalism by writing articles about the specific business challenges facing family firms. In 2003, he took a job on the finance desk of Teletext, where he spent two years covering the markets and breaking financial news.
His work has been published in Families in Business, Shares magazine, Spear's Magazine, The Sunday Times, and The Spectator among others. He has also appeared as an expert commentator on BBC Radio 4's Today programme, BBC Radio Scotland, Newsnight, Daily Politics and Bloomberg. His first book, on contrarian investing, The Sceptical Investor, was released in March 2019. You can follow John on Twitter at @john_stepek.
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