Is FTSE high equal to increasing investors' confidence?

The FTSE 100 index is up 2.9 percent compared to the beginning of this week. Only yesterday it increased by 19.88 points or 0.4 percent yesterday. The index thus reached the highest close in 14 months, since September 2008. The strong rebound of 53 percent since hitting a six year trough in March means that the FTSE 100 is now approaching the magical 5,300 points benchmark. Despite this fact making headlines in most of the major financial newspapers, I could not be convinced that this fact was enough to define the economic recovery as sustainable. So I started researching in...

...the Wall Street Journal, which in the article includes not only the general information about the FTSE needed to satisfy the reader that had been attracted by the headline, but also examples of some companies. An overview of some European markets, including the recovery of major brands in the jewellery and clothing industry is given. Mentioned are also the major events in the French CAC and the Nikkei index in Tokyo. This is all interesting information but not what I need in order to find out if the FTSE 14-month high means anything to the world's currently major concern: the economic recovery. From a rather long article with the words 'FTSE' and '14-month high' in the title I expected more information than just the numbers I can read off a normal chart in no time. Furthermore the fact that no primary research is referred to in the text makes the article rather dry and boring.

From a very short article on FinanceRoll I was able to get more specific information about the 'whys' of the good results: British Airways improved not only the stock but also partly the index since the merger with Iberia and BT Group raised its cash-flow forecast. However, these two facts told me that the FTSE 100 high was mainly influenced by one large merger and by a lousy forecast of one of the world's biggest companies. An increase in indexes is generally speaking a good news, but in this case certainly not something that convinces me that everything is fine already.

The article I read in Reuters afterwards increased my disappointment for the newly discovered source of FinanceRoll: it was not mentioned that it was the increase of heavyweight bank HSBC that added the most points to the FTSE index. Only this week HSBC's stock increased by an incredible 8.5 percent. Along with results of other banks also the stated stock changes of large energy firms helped me to create a picture of what the main drivers for the FTSE index were. From an interview (!) with a strategist at IG index I learned that also the good US retail figures and the recent UK inflation data could be considered as evidences of economic recovery. This article was the most complete, which is probably why it has been published on many other websites including Yahoo Finance, Euroinvestor and Forbes.

On the whole it can be said that some more of investors' confidence can be found in the market. However, uncareful readers can be misled once again by the optimistic titles in this weeks' financial media. The fact that some other large banks like Barclays or LLoyds actually experienced falling stock prices shows that a common phase of reinvesting in the market has not started yet. However, the increasing hunger for investment opportunities not directly related to the market, for example in real estate, lets profits and forecasts of many big players and companies depending on these big ones, increase. I believe that this is likely to lead to more homogeneous results throughout the stock market and means that financial media can look at the economy as a whole again when making positive headlines. Not just at FTSE 100.

Sources:
http://online.wsj.com/article/SB10001424052748703811604574533830637220564.html
http://www.reuters.com/article/londonMktRpt/idUSLD5164620091113
http://www.financeroll.com/en/headline-news/news-stock-market/149995-ftse-index-end-higher-at-14-month-high.html

http://uk.finance.yahoo.com/news/ftse-hits-14-month-closing-high-hsbc-advances-targetukfocus-c5fc9fbc6e63.html
http://www.euroinvestor.co.uk/print/printnewsstory.aspx?storyid=10734753
http://www.forbes.com/feeds/afx/2009/11/13/afx7121007.html