From the editor...
World War Three?
The Magnificent Seven? So last week. An extraordinary amount of fanfare greeted the FTSE 100’s ascent to a new record closing high this week considering it almost happened a fortnight ago and was discussed to death then. Markets often display attentiondeficit hyperactivity disorder (ADHD), fixating on something then suddenly dropping it and moving on to something else.
It is of course good news that the FTSE 100 has finally limped over the 8,000 mark.
A bit of schadenfreude may have provided additional impetus and good cheer. While more encouraging macroeconomic data and some solid earnings reports boosted optimism on this side of the Atlantic, on Wall Street the main indices have been struggling, with the technology-heavy Nasdaq recording its worst five days since November 2022 last week (a drop of almost 4%). The blue-chip S&P 500 index is now around 5.5% below its record peak of three weeks ago.
The old economy has aged well
It is a good week, then, to be reminded of the appeal of the old-economy sectors the FTSE specialises in. For instance, says John Authers on Bloomberg, defence group Rolls-Royce has quadrupled since 1 January 2023, easily outpacing the US Magnificent Seven, which has merely doubled since then in sterling terms.
You will find a smaller, but equally promising defence stock on page 24.
A longer-term view of sectors in and out of favour helps explain part of the British market’s long-term ups and downs (see page 5). The FTSE 100 outstripped the S&P 500 in US dollar terms between the end of the post-dotcom bust and the peak of the mortgage bubble in 2007. The financial and raw materials industries help explain that (it was the era of the commodities supercycle) and once the credit bubble burst, there was no technology bubble here to compensate.
Despite the record high, the UK market is still the cheapest big global market on a price/earnings (p/e) ratio of ten, as Jim Mellon pointed out this week. And we get a double discount if we buy Britain through cheap investment trusts (see page 17). My recent series of MoneyWeek podcasts, sponsored by IG and available on Spotify, provides plenty of additional ideas worth investing in with trusts. On the subject of MoneyWeek, I would also like to draw your attention to our new series of Readers’ Choice Awards to help us find the top providers of investing, saving and banking products. Please participate in the survey at MoneyWeek.com/awards.
There are several potential policies that could give the FTSE the lasting fillip it desperately needs, as we often note, but a key problem is a sense of political drift hampering efforts to tackle deep-rooted structural problems in both the stockmarket and the economy. We seem to have forgotten the importance of growth (see page 15). With grit and determination apparent basket cases can be reformed successfully (see pages 19 and 38), but the maxim here is clearly “no pain, no pain” rather than “no pain, no gain”.
There is a political equivalent of the Minsky moment, a crisis occurring once years of stability and complacency have bred instability, and we may be getting there. As novelist G. Michael Hopf put it, “Hard times create strong men, strong men create good times, good times create weak men, and weak men create hard times”. We are in the last stage of the cycle.
“With grit and determination even basket cases can be reformed successfully”