The FTSE 100 index has seen a notable start to 2024, striking record highs in May and demonstrating a resilience that outpaces its performance from the previous year.
Despite a positive outlook, there are signs suggesting a potential summer slowdown in momentum. From the highs of May, the index has pulled back almost 3%, yet the 6% gains YTD reflect a market on the up.
Having retested the 8,200 mark from today's open, the index finds itself back where it started on the day, in the low 8190's range.
Rolls-Royce (LON: RR) has emerged as a leader amongst the index's components, with an impressive 51% return during the first half of the year.
This surge can be attributed to the rejuvenation in international travel and an uptick in defense spending. It wasn't the only success story on the financial front; names like Hargreaves Lansdown (LON: HL), NatWest (LON:NWG), Barclays (LON:BARC), Intermediate Capital (LON:ICG), and Beazley (LON:BEZ) also made it to the top 10 performers list, highlighting the robustness of the UK's financial services sector.
However, the same robustness could not be seen across all sectors. Consumer cyclical stocks faced headwinds, with companies such as Entain (LON:ENT), Burberry (LON:BRBY), JD Sports Fashion (LON:JD), and Whitbread (LON:WTB) being hit hard due to increased cost of living concerns and tightened consumer spending. These challenges reflect broader economic issues that the UK market is currently navigating.
A significant downturn was experienced by Ocado (LON:OCDO), whose share price plummeted by 51%, resulting in its demotion from the FTSE 100. The online grocer's struggles underline the intense competition within the UK's grocery market and the damaging effects the cost-of-living crisis has had on retail operations.
Nonetheless, despite these sector-specific issues and the index's gain, the FTSE 100 may have to grapple with historical seasonality patterns that could act as barriers to further growth as the year advances. The concept of “Sell in May and go away,” which suggests that equities perform poorly over the summer, might become relevant for traders and investors to consider in their strategies.
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Yet, the FTSE 100 could continue to draw attention in the latter half of the year due to its relative undervaluation compared to other global equity markets. This relative cheapness could turn into an advantageous pull for global investors searching for value.
As the second half of 2024 takes hold, investors may continue to navigate a landscape marked by sectoral divergence, keeping an eye on historical trends and potential opportunities that the FTSE 100's valuation presents. Whether the index will maintain its momentum or succumb to seasonal weakness remains to be seen, but its recent performance certainly provides a foundation of cautious optimism for market watchers.
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