Covid-19 vaccine progress and optimism that a Brexit deal can be struck propelled the FTSE 100 to its best month in over three decades as November drew to a close yesterday. Over the whole month, the benchmark index of the 100 most valuable companies on the London Stock Exchange gained 12.4%. That saw it comfortably beat the 11.5% return recorded in May 1990 for a result only bettered in history by a 14% gain in January 1989.
To beat the 1989 record, the FTSE 100 needed to finish yesterday’s session above 6383 points. However, a 1.6% slide worth 100 points saw the index close the month at 6266.19. Not quite a historical best, but not far off it.
An equity markets dip yesterday was anticipated, with traders aware that a host of large funds and other institutional investors have built up their exposure to the stock market to levels above their limits. Which means shares have to be sold off before the end of the year.
Outside of the FTSE 100, the FTSE 250 had a similarly positive November, up 12.3%. While it’s not necessary to go back to 1989 for a better performance, it was still the mid-cap index’s best month since 2009.
However, both indices still remain some way off their pre-pandemic levels, with the FTSE 100 still 16.8% short of its February high, while the FTSE 250 has 11.6% still to make up.
Across Europe’s major indices, a number of all-time records were smashed. The broad-based Euro Stoxx 600 index, which also includes a number of London-listed companies, was up 13.7%, to beat its previous record of 13.5%, set over April 2009.
Wall Street’s S&P 500 gained 10.3% in November, some way short of even its best month of 2020, with a 12.7% gain recorded in April as it rebounded strongly from the February to March sell-off.
The pandemic period has seen investors adopt a cautious attitude to equities, viewing them as risky and generally increasing allocations to bonds and gold. However, over the past few weeks, risk-on sentiment has returned, and investors have been buying up equities with a view to 2021, when stock markets are expected to do well, freed of the shackles of Covid-19.
However, many funds are obliged to keep equities exposure below a certain threshold due to their stated investment strategy. And those that have bought beyond those limits to take advantage of the bull market in place since April may now have to sell off to bring their quotas into line before the end of the year.
Early trading today sees the FTSE 100 back up by 1.8%, suggesting yesterday’s dip was influenced by institutional investors rebalancing portfolios.
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