In this series, we bust the jargon and explain a popular investing term or theme. Here it’s milestone moments.
A range of greeting cards for special birthdays and anniversaries?
You’re on the right track. This is a stock market term for key moments in the direction of indices, like the FTSE 100, the Dow Jones and the S&P 500. When an index reaches a level like, say, 1,000 or 8,000, this sparks a torrent of comment about what lies ahead. Investors should think long-term, but it is only natural to be interested in milestone moments – if nothing else, they make you reconsider your goals.
About a year ago, the FTSE 100 briefly soared above 8,000. At the time, some thought that the only way was up. They were wrong, sadly, thanks to geopolitical tensions and rising interest rates.
Why are we reading about these moments now?
The US S&P 500 index touched a record 5,000 last week, a landmark that provoked a huge debate about the next moves.
At the end of last year, the median forecast for the S&P 500 in 2024 was 5068, but this target will likely be surpassed.
Turning point: When an index reaches a new level, this sparks a torrent of comment about what lies ahead
Optimism increased at the end of 2023 when the S&P 500 rebounded by 20 per cent from its October low, amid hopes that slowing inflation would bring three interest rate cuts in 2024.
Why so much fuss about the S&P?
The Dow Jones may be the best known US index, but it covers only the 30 most traded stocks. The S&P 500 is seen as a better guide to sentiment since its constituents represent about 80pc of the market’s total value. This index was launched in 1923. At first, it contained only 233 stocks, but it was expanded to 500 in 1957. It reached its first milestone of 1,000 on February 2, 1998.
American stock markets really matter because US shares account for about 64pc of the total value of all stock markets, against 20pc in 2010.
What’s the focus of the debate?
Whether the 5,000 level is a signal to start buying, or to be wary. At the centre of these discussions is the outlook for the Magnificent Seven stocks that delivered about 26 per cent of the S&P 500’s total return in 2023, thanks to Artificial Intelligence excitement.
The Magnificent Seven are Alphabet (the Google group), Amazon, Apple, Meta (owner of Instagram and Facebook), Microsoft, chipmaker Nvidia and Tesla. The shares of the first six could rise further, according to forecasts. But there are concerns that Tesla may be overvalued. Its shares have fallen by 23 per cent since January 1.
Are there reasons to be cheerful?
Yes, the performance of the Magnificent Seven has overshadowed the other stocks in the S&P 500, which have largely moved sideways. Interest rate cuts – which could begin in May – may provide a boost.
The downward move in the VIX ‘fear’ index – which measures volatility and is seen as a guide to the market’s mood – suggests that traders are relatively sanguine about the outlook.
Could the FTSE 100 deliver a milestone moment this year?
It rose by just 3 per cent in 2023. As a result, UK shares are regarded as cheap, in light of dividend payouts and profits forecasts. But anyone backing Britain needs to acknowledge the global fixation with the US markets.
