FTSE 100 hits another record close – will the rally continue?

Investors appear to be in benign mood, but current trends could be misleading

(Image credit: SHAUN CURRY/AFP/Getty Images)

"It's been on a fierce rally for months and on Thursday morning the FTSE 100 scaled a fresh record high," says The Independent.

Yesterday, the UK's blue-chip index hit an intraday all-time high of 7,440 before settling at 7,415 - another record close in a year of consecutive record closes.

The trend is being driven by a number of factors, including the Federal Reserve's decision this week to increase interest rates.

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The central bank pursued a "Golidlocks" path, emphasising the strength of the economy, but said it will move "gradually" with future rate rises so as not to choke off the still-nascent recovery.

Neil Wilson, at ETX Capital, told the BBC the message was: "The US economy is firing, but inflation is not going to be an issue. It's in no hurry to raise rates and that is good news for equities."

Peter Cardillo, chief market economist at First Standard Financial, said: "A less aggressive Fed was clearly the message the markets wanted to hear and indeed acted accordingly."

For the stock market, there was also the consequent fall in the dollar related to the Fed's dovish tone, which makes commodities cheaper and so boosted the global miners that pepper the FTSE.

Conversely, the pound remains low relative to the dollar and is 17 per cent below its pre-Brexit vote level. It could even fall further in the weeks ahead as the government prepares to trigger Article 50.

Sterling's slump has helped the FTSE, whose constituent companies generate two-thirds of earnings overseas.

At the end of last year, it was reported by The Guardian that a 15 per cent surge for the index overall in 2016 actually equated to a near five per cent fall if measured purely in dollar terms.

So with rates likely to remain subdued, volatility remaining low and the economy at home proving resilient and positively buoyant in the US, is the index set to continue its rally?

It is possible in the short term, but looking a little further ahead, FX Empire raises concerns that the "Trump bubble" in the States might burst, the Brexit process at home could bite harder or that China's economy will experience a hard landing.

In short, the site says there are big risks on the horizon that analysts feel are not properly priced in to markets and investors should tread carefully.

"When looking through the markets for value, it’s certainly a challenge to now enter with conviction, bringing into play the next big short," it adds.

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