As we approach the Fourth of July and celebrate the 250th anniversary of America's separation from Great Britain, it is a good time to see what's been moving markets across the pond. Looking below at an index of the top 100 UK companies listed on the London Stock Exchange, things have been uncertain.
Recent energy shocks have caused the trend to be very choppy as two competing forces pull the index in different directions. On the one hand, higher UK energy prices depress consumer spending, pushing down stocks in consumer staples and discretionary goods. On the other hand, bank stocks have been doing quite well with already strong balance sheets continuing to benefit from higher interest rates. Both sectors represent half of the top 100 stocks in the index and recent signs of a breakout suggest that finance is winning that battle.
The technicals are not providing a clear picture on where the market is going. The RSI, which tracks investor sentiment along the trend, is jumping around its bullish range. The MACD however, which confirms whether the RSI is telling the truth, is not strong enough to suggest a true breakout is occurring just yet.
If the breakout occurs, recent history suggests that it probably will not be stellar. The average annualized return for the FTSE 100 over the past 5 years has been around 8%. Compared to the S&P 500’s 12% annualized over the past 5 years, it's another reason to celebrate America's birthday.
This material is for informational purposes only and is not intended as investment, tax, or legal advice. Past performance is not indicative of future results.