FTSE 100 as a Measure of the Markets

The FTSE 100 has been trending upwards in recent weeks, but it is unclear how much of that is a reflection of the health of the UK economy, and how much is simply a short term thing prompted by the fluctuations in the strength of the sterling.

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shareprices.com - Saturday, October 14, 2017

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Hargreaves Lansdown analyst Laith Khalaf notes that the level of the FTSE is not a simple indicator of the value of UK stocks - it does not take into account the level of earnings for each of the companies in the index. It would be unwise to base any investment decisions on the strength of the FTSE 100, since that is similar to making a decision to buy something based on the price of the item - with no knowledge of what the item actually is.

That doesn’t mean that there is no reason to be positive, however. The global economy is showing some strength. The US is showing growth and Europe is recovering too. Interest rates are low, and UK consumers appear resilient as the Brexit talks go on. However, for those who are looking to take a long-term view, the direction of the stock market right now, and the short term volatility, is not something to be concerned with. Over a long enough time period, the stock market does reflect the general direction of the rest of the economy. The old advice about remaining calm and un-emotional about trading is something that still holds true.

 

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