Yahoo Finance How to profit from a record FTSE 100
The FTSE 100 has hit record highs of late. The question to ask though, is whether this is a rally worthy of champagne or merely sparkling wine?
Boom or Bubble?
Nevertheless, we are now seeing the UK’s leading index soar well above previous records make at the time Dotcom boom and after the Brexit vote just below 7,000.
With the FTSE 100 up at 7,500, there may very well be some investors wondering how this has happened and how they can profit from it?
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Doubts in the UK housing market
The UK stock market may have benefitted from doubts surrounding the current UK housing market, which has been knocked back due to the uncertainty around Brexit.
This translates to – in investor terms – switching some of their cash from traditional “bricks and mortar” back to stocks and shares.
If this is a verifiable trend, we may see much more on the upside for the FTSE 100.
Indeed, from a technical perspective, the latest break of the recent 350 range between 7,100 and 7,450 implies we could see another 350 points of upside to take this market to 7,800 over the course of the summer.
Higher Inflation
At the same time the higher inflation of 2.7% reported on May 16 – the highest since September 2013 – creates an atmosphere which is traditionally good for mining stocks, supermarkets, and banks in particular.
Perhaps, due to a stubborn monetary policy at the Bank of England, we remain far away from interest rates being raised, as they are being in the US.
Therefore in this intermediate phase, it could very well be that we have a Goldilocks scenario with the housing market remaining stable, and shares rising strongly upon the return of inflation into the economy.
Banking on winners
Perhaps the biggest winners of all could be the banks, with the best play in this area being Lloyds Banking (LLOY) as the government cuts the final part of its stake.
This point has not been missed by star fund manager Neil Woodford who announced he is switching from GlaxoSmithkline (GSK), the drugs giant and moving to Lloyds.
But even the likes of Royal Bank of Scotland (RBS) where there have been years of losses could finally see conditions benign enough for their valuations and profits to turnaround.
So it may very well be that we can profit from the rising banks of the FTSE 100, at least until interest rates are hiked in the UK.
A final positive aspect to remember is the proposed reform of the banking sector in the US by President Trump, the Dodd-Frank rule which raised capital requirements in 2010, looks set to be overturned.
If this is the case then banks such as RBS who certainly have cash issues look likely to be positively impacted.
