Interactive Investor

Is this the year FTSE 100 finally hits 8,000?

4th January 2022 13:05

Graeme Evans from interactive investor

The first day of trading for UK stocks in 2022 could not have started much better. Here are the day’s big winners and what experts think could be in store for this year.

A fast start to 2022 today boosted hopes that the FTSE 100 index can finally catch up with record-breaking Wall Street and European peers by topping 8,000 for the first time.

Having been off the pace since the Brexit vote, London's top flight has risen up the global league table in recent weeks with a 6% surge since the 30 November low point in the Omicron sell-off.

Hopes that the variant won't be as damaging to the global economy as first feared meant oil giants BP (LSE:BP.) and Royal Dutch Shell (LSE:RDSB) rallied 4% on Tuesday, while there were also strong gains across the financial sector. They included Lloyds Banking Group (LSE:LLOY) with a 1.5p jump to 49.31p.

The biggest cheer of the day came from travel-focused investors, as the improved visibility on 2022 bookings sent British Airways owner International Airlines Group (LSE:IAG) 12% higher, and back above where it was prior to the panic over the Omicron variant.

The shares now stand at 160p, having risen by 23% in what is easily the best performance by a FTSE 100-listed stock in the period since the end of November. At the start of 2020, the airline was changing hands for 450p a share.

Rolls-Royce (LSE:RR.), whose fortunes hinge on an improvement in long-haul engine flying hours, also resumed its recovery with a gain of 4.3p to 127.22p, but the widely-held stock is still below where it was prior to Omicron.

Whitbread (LSE:WTB) and InterContinental Hotels Group (LSE:IHG) were among other big risers on the first trading day of 2022, as the FTSE 100 index climbed 1.3% or 96.9 points to 7,481.44. That's the best level since the early days of 2020, but still some way short of the 7,877.45 reached on 22 May 2018.

Other global markets have already reached all-time highs in recent months, with the Dow Jones Industrial Average last night setting another record as the best performing US market in the period since 30 November. Germany's Dax and France's Cac 40 both set new records in early November after surpassing the levels seen in the 2000 dotcom boom.

There's plenty of support for the FTSE 100 index to follow suit as Morgan Stanley, UBS and Panmure Gordon are among City firms forecasting year-end finishes above 8,000. The feeling that the UK top flight is undervalued is underlined by a dividend yield of 3.5% in 2021, compared with 1.3% in the US and 2.8% for the eurozone.

For some, however, the lingering frustration that the FTSE 100 is still too reliant on old economy stocks continues to hold back their expectations. That dour image hasn't been helped by comparisons with Wall Street's $3 trillion valued Apple Inc (NASDAQ:AAPL) which, as we point out today, exceeds the combined worth of all the companies listed in the UK's top flight.

London is reliant on the resources sector, but Bank of America says this is a reason to be cautious on the UK in 2022. It believes the energy sector will come under pressure due to dollar strength and weakening US growth momentum, with its overall assumptions pointing to 5% underperformance for UK equities by the end of the third quarter.

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