INVESTING EXPLAINED: What you need to know about milestone moments

In this series, we debunk the jargon and explain a popular investment term or theme. These are milestone moments.

An assortment 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 such as the FTSE 100, the Dow Jones and the S&P 500. When an index reaches a level of, for example, 1,000 or 8,000, it leads to a flood of commentary about the obvious . Investors need to think long-term, but it’s only natural that they are interested in milestone moments. In any case, they will make you reconsider your goals.

About a year ago the FTSE 100 briefly rose above 8,000. Some at the time thought the only way was up. Unfortunately, thanks to geopolitical tensions and rising interest rates, they were wrong.

Why are we reading about these moments now?

The US S&P 500 index reached a record 5,000 points last week, a milestone that sparked major debate over its next steps.

At the end of last year, the average forecast for the S&P 500 in 2024 was 5068, but this target is likely to be exceeded.

Optimism rose in late 2023 as the S&P 500 rebounded 20 percent from its October low on hopes that slowing inflation would lead to three rate cuts in 2024.

Why so much fuss about the S&P?

The Dow Jones is perhaps the best-known American index, but only covers the 30 most traded stocks. The S&P 500 is seen as a better guide to sentiment as its components represent approximately 80% of the market’s total value. This index was launched in 1923. Initially it had only 233 stocks, but it was expanded to 500 in 1957. On February 2, 1998, it reached its first milestone of 1,000.

US stock markets really matter because US stocks represent about 64% of the total value of all stock markets, up from 20% in 2010.

What is the focus of the debate?

Whether the 5,000 level is a signal to start buying, or to be wary. At the center of these discussions are the prospects for the Magnificent Seven stocks that delivered about 26 percent of the S&P 500’s total returns in 2023, thanks to excitement about artificial intelligence.

The Magnificent Seven are Alphabet (the Google group), Amazon, Apple, Meta (owner of Instagram and Facebook), Microsoft, chip maker Nvidia and Tesla. The shares of the first six could rise further according to the forecasts. But there are concerns that Tesla may be overvalued. Shares have fallen 23 percent since January 1.

Are there reasons to be cheerful?

Yes, the Magnificent Seven’s performance has overshadowed the other stocks in the S&P 500, which have largely moved sideways. Interest rate cuts – which could start in May – could provide a boost.

The downward movement of the VIX ‘fear’ index – which measures volatility and is seen as a guide to market sentiment – ​​suggests traders are relatively optimistic about the outlook.

Could the FTSE 100 deliver a milestone moment this year?

In 2023, the price rose by only 3 percent. As a result, UK shares are considered cheap, in light of dividend payments and earnings forecasts. But anyone who supports Britain must recognize the global fixation on US markets.