FTSE 100 index breaches 15-year closing record

UK’s top 100 share index breaks above the record closing high from 1999.

Britain’s leading share index sailed past the 1999 record closing high, lifted on a generally upbeat tone in the markets throughout Europe. Investors now eye the all-time index high as the next target, which lies around 6,950.

Both records were set around 15 years ago on December 30 1999, during the midst of the dotcom boom. The FTSE 100 index has since crept lower and expert opinions are mixed on whether the all-time record high will remain a barrier, or if it will not last too much longer.

When trying to gauge whether the latest market run has petered out, or whether there’s still potential for markets to climb higher, it’s good to look at the price to earnings ratios for companies. It’s a good measure to gauge the overall health of businesses in the index and provides a sensible, informed comparison.

Data from Hargreaves Lansdown shows that current price to earnings ratios of the UK’s largest companies sits at around 16 times earnings, which is only slightly above the long-term average of 15 times earnings. Furthermore, the ratio is nowhere near the bloated ratios of December 1999, where the ratio soared to almost 30 times earnings.

“Investors shouldn’t get spooked by the FTSE 100 reaching new highs. When you factor in company earnings, the UK stockmarket looks close to its long-term average,” explained Laith Khalaf, a senior analyst at Hargreaves Lansdown.

“In the short term the UK election may cause some turbulence for UK stocks, but an improving economy, low interest rates and low inflation provide a positive backdrop for UK companies.”

The UK economic recovery continues to gain strength and will likely gain a further boost from a sustained period of oil prices around current levels, coupled with a shorter period of low or negative inflation. It means that businesses and consumers alike will enjoy an increase in purchasing power and should further boost economic activity in Britain.