Being a successful investor or trader requires a great deal of knowledge and expertise. You must be able to analyse markets and use the information you gain from your observations to make predictions about the future and plan your strategy accordingly.
The FTSE 100 is one of the most watched markets in the world, and its performance can have various wide-ranging implications for a number of different industries and sectors.
In this article, we will take a look at what exactly the FTSE 100 is and analyse how it has performed during 2022. Keep reading to find out more.
What is the FTSE 100?
The FTSE 100, often referred to as Footsie, is the name given to the Financial Times Stock Exchange 100. This is an index comprising the 100 biggest companies that are listed in the UK. This means that companies that operate outside of the UK can be included on the exchange provided they are listed in the country.
The FTSE 100 was launched in the 1980s as a collaborative effort between the Financial Times newspaper and the London Stock Exchange. It was intended to allow the industry to keep up with a shift towards more digital and electronic means of practice.
The exchange works by compiling the top 100 UK-listed companies and ranking them based on each company’s free float-adjusted market cap. Companies with closely held or restricted stock are not included on the list, only companies with available, tradeable stock.
The list is reviewed and updated every financial quarter to guarantee that it still includes the top 100 companies. This review is carried out by the FTSE 250, which is an index of the UK’s top 250 companies after the initial top 100.
How Does the FTSE 100 Work?
The FTSE 100 index has an overall share price that is determined by the market caps of all the companies on the list. This share price is calculated and published every day and can be used to assess the performance of the index as a whole. The index’s value can be influenced by the performance of any of the companies on the list.
When the value of the index is published each day, it is compared to the value posted at the close of the market the previous day. This allows traders and investors to make quick short-term comparisons and analysis of the market’s performance.
How Does the Pound Affect the FTSE 100?
The health of the Great British Pound significantly affects the value of the FTSE 100. Some companies on the list have values listed in dollars, which means that they perform better when the pound is weak. A weak pound can actually result in the index’s overall share price increasing due to the boost it can give dollar-based companies.
How Has the FTSE 100 Performed in 2022?
As with all markets and stock exchanges, the FTSE 100 is influenced by a range of different external factors and global events.
Markets saw a period of recovery after the chaos caused by the Covid-19 pandemic. The FTSE 100 was no exception, hitting what was to be a year-high on 10 February, with a share price of 7,687.27. Many investors took this to be an indication that the index would go on to perform strongly for the rest of the year.
However, shortly after this result was posted, war broke out in Ukraine. This sent global markets haywire, the FTSE 100 included. After its February high, the FTSE 100 published what was to be its year-low value of 6,707.62 on 13 October.
This slump is indicative of the market’s vulnerability to external influence and had many investors worried about the index’s future given the ongoing geopolitical instability.
In what came as something of a surprise, the FTSE 100 have demonstrated remarkable powers of recovery since this low point. At the time of writing this article on 7 December, the market was sitting at a value of 7,516.52, considerably higher than its yearly-low and not far off its yearly-high.
When compared to other stock exchanges, the FTSE 100 has actually performed rather well and recovered faster in the face of economic uncertainty. The US equivalent, the S&P 500, suffered a much greater slump and is still yet to fully recover after posting a yearly-high all the way back in January.
What’s Next for the FTSE 100?
Investors in the FTSE 100 would have been alarmed with how the market reacted to global events this year and would have held concerns for the security of their investments. However, it would seem things could have been worse, especially when the index is compared to similar stock exchanges around the world.
Additionally, the market’s recovery will have further allayed investors’ fears. It would seem to indicate that the index is well on the way to regaining some semblance of stability.
Experts predict that the FTSE 100 will continue to behave unpredictably as we head into 2023, but it might not be as bad as initially feared.
Conclusion
A successful investing strategy involves accurate market and prediction and analysis. One of the best ways to do this is to examine how markets have previously behaved and use this to draw up estimates for future movements.
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