Here’s why I think the FTSE 100 index is headed to 8,000 in 2022
If the number sounds audacious, I can assure you it is not. Think about it. Last year at this time, the FTSE 100 index was in the area of 6,500. Since then, it has risen by around 12%. At its last close at the time of writing, the index was at a level of around 7,300. So, to reach 8,000 in 2022, it needs to rise by less than 10%. Theoretically, that sounds possible.
A repeat of a market rally? Not really…
But last year was a different story, do I hear you say? Yes, of course, it was a different story. A stock market rally had just got underway in November 2020, after the vaccines were first developed. Investors were bullish again, and recovery stocks were suddenly back in demand. But the initial spurt in the FTSE 100 index had already happened. In fact, by this time last year, it was already up by some 17% from the end of October. In other words, the bigger part of the stock market rally had already happened by then. This says to me that what we have seen in the past year looks more like relatively slow growth and less like a stock market boom.
Leaving Omicron behind
And there is reason to believe that this kind of growth could happen next year as well. It is true that the Omicron virus has created new uncertainty. But considering the progress made so far in managing the pandemic, I think it is fair to expect that we will be able to put this situation behind us sooner rather than later. In fact, I am quite encouraged by some reports that the severity of this variant is much less than that of other variants. And with booster vaccinations now available to fight it, I think we might just put it behind us soon enough. I think the stock markets might just be ready to rally when that happens.
The recovery could support FTSE 100 stocks
Hopefully, in 2022, the recovery could take place in earnest. There have been starts and stops in 2021, which have held it back. Sure, the policy support is unlikely to be as strong as it has been during the pandemic. And this could slow down the pace of recovery. But then again, a genuine recovery would ideally be strong enough to take place even without it. At the micro level, a recovery should be visible in individual companies’ results, which could also carry the FTSE 100 index forward.
What I’d buy now
So if we are looking at the FTSE 100 index at 8,000 in 2022, or a 10% gain from present levels, I think cyclical stocks could gain significantly more. I am bullish on banking and non-essential retailers for the next year based on this. I would buy banking stocks in particular because interest rates have now started rising, which could be good for their bottom lines.
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Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.