The FTSE 100 is rallying today, continuing its best start of the year, as investors look ahead to more stimulus in the United States. The index is also rising as investors welcome the recently-passed Brexit deal. The Footsie is trading at £6,917, which is 7% higher than where it started the year.
What’s happening: The biggest catalyst that is pushing the FTSE 100 higher today is the hope that America will unveil a larger stimulus package in the next few weeks. That’s because of yesterday’s victory of Democrats in Georgia.
Economists estimate that the new leadership will provide at least $2 trillion in stimulus with most of these funds going directly to households. Others will go to infrastructure. The FTSE 100 will benefit since many constituent companies operate in the United States.
Is this a bubble? Meanwhile, a Wall Street legend, who is famous for predicting the past financial crisis, has warned about the formation of a bubble. In a note to investors, Jeremy Grantham, founder of GMO, said that the current conditions seemed like a bubble. He cited Tesla, the automaker that is currently worth more than $700 billion. He said:
“Featuring extreme overvaluation, explosive price increases, frenzied issuance, and hysterically speculative investor behaviour, I believe this event will be recorded as one of the great bubbles of financial history, right along with the South Sea bubble, 1929, and 2000.”
On the daily chart, we see that the FTSE 100 has been in a strong surge recently. It remains above the short and long-term moving averages. Also, it is above the important resistance level of £6,677 while the Relative Strength Index (RSI) has continued to rise.
Therefore, in the near term, the index will likely continue rising as bulls target the next resistance at £7,000.
