FINANCE // The FTSE 100: Lessons from a Five-Year Peak
For the first time in half a decade, the FTSE 100, the UK’s flagship stock market index, has hit record levels.
The headlines call it a “five-year high.” Investors are celebrating. Politicians are quoting it.
But behind the numbers lies a more interesting truth: this isn’t a boom built on hype, but a quiet re-rating of Britain’s most global companies; and a signal that value, yield, and patience are back in fashion. We unpack what the FTSE 100 really measures, why it’s rising now, and what this moment reveals about the next era of wealth creation.
Overview: What the FTSE 100 Actually Is
The FTSE 100 (pronounced “Footsie”) is the UK’s flagship stock market index, a barometer of Britain’s largest publicly listed companies. It was created in 1984 by the Financial Times and the London Stock Exchange as a snapshot of the UK equity market’s top tier.
It tracks the 100 largest companies by market capitalisation listed on the London Stock Exchange’s Main Market. The index is reviewed quarterly, meaning companies can move in or out depending on their market value, so it’s a living measure of corporate Britain’s economic pulse.
Despite its British identity, it’s a global index in disguise: around 80% of the FTSE 100’s revenues come from overseas; spanning everything from copper mines in Chile to pharmaceutical research labs in Cambridge to luxury brands sold across Asia. That’s why it often rises when sterling weakens, and why global investors view it as a play on international, not domestic, trends.
That global reach means the FTSE 100 often behaves like a mirror to the world economy, not the UK high street. When sterling weakens, or commodity prices climb, the index tends to rise. When global growth cools or the pound strengthens, it softens.
In short: the FTSE 100 isn’t a temperature check on Britain’s domestic economy, it’s a lens on how British-listed global capital performs.
Composition: What’s Inside the FTSE 100
The composition of the FTSE 100 reveals what drives wealth creation today. It is heavy with energy, finance, healthcare, and global consumer brands, light on technology and small-cap innovation. It reflects the shape of the modern British economy and this composition means the FTSE 100 behaves differently from the S&P 500 or Nasdaq: it’s value-heavy, dividend-rich, and commodity-sensitive. It’s less about fast-moving tech, more about steady cashflows, dividends, and tangible assets. When the world rotates away from speculative growth and back toward value and income, as it has recently, the FTSE tends to shine.
The FTSE 100 in Context: Why It’s the Highest in 5 Years
When headlines declare that the FTSE 100 has reached a five-year high, it’s not necessarily because the UK economy is booming. Rather, it reflects the global positioning of its biggest players.
In recent months, several forces have aligned:
Rising commodity prices boosted energy and mining giants.
Sterling weakness made UK-listed multinationals’ overseas earnings more valuable.
Investor rotation from expensive US tech into undervalued UK equities drew global capital back to London.
Dividend yields, often above 4%, made the FTSE 100 appealing to income-seeking investors amid uncertain bond markets.
Expectation of lower interest rates improved sentiment toward equity valuations.
So while the FTSE’s level might suggest optimism, it also highlights how global, and in some ways detached from the domestic economy, the UK’s corporate landscape has become.
Why the FTSE 100 Matters (Even If You Don’t Own Shares Directly)
It’s a proxy for investor confidence in the UK
When the FTSE 100 rises, it often signals international investors are comfortable with Britain’s economic direction, political stability, and currency outlook.
It affects pensions and ISAs
Millions of Britons’ pensions and investment portfolios track the FTSE 100, directly or indirectly. Performance here shapes long-term wealth outcomes.
It signals sectoral shifts
Which companies dominate the FTSE tells you what the world values. In the 1990s it was oil and banking; today, it’s pharmaceuticals, energy transition, and global consumer brands.
It reflects global capital flows
Because the index is so internationally exposed, its movements often mirror global macro trends more than local news. When Asia or the US slows, London feels it.
What It Signals About the Broader Economy
Interestingly, a strong FTSE 100 doesn’t necessarily mean the UK economy itself is thriving. Many of the companies driving the rally earn more abroad than they spend at home. But it does send a message about confidence in British capital markets. It tells us the world still trusts London’s corporate governance, dividend reliability, and legal structure.
It also reflects the global rotation toward “real assets” (commodities, energy infrastructure, healthcare, and defence) over the high-growth tech dominance that defined the last decade. In that sense, the FTSE’s rise is part of a wider global rebalancing: a return to tangible value, long-term cashflows, and defensive resilience.
Why It Matters to You
The FTSE 100’s story carries three powerful lessons:
Diversification works.
Many FTSE 100 companies earn in multiple currencies and jurisdictions, protecting against local volatility. That same principle underpins sound portfolio design.
Dividends compound.
Over time, the reinvestment of dividends has been the largest contributor to total returns in the UK market. In uncertain periods, income can be more powerful than speculation.
Patience pays.
After years of being overlooked, the FTSE’s resurgence shows that value eventually finds its audience. Long-term investors are often rewarded for conviction, not trend-chasing.
Looking Ahead: What to Watch
As we move into 2026, three variables will determine whether this rally endures:
Currency: A stronger pound could dampen exporter profits.
Commodities: Sustained demand from Asia will be key for miners and energy stocks.
Monetary Policy: If the Bank of England or Federal Reserve delay rate cuts, valuations may plateau.
In other words, the FTSE 100’s trajectory from here depends less on Westminster, more on Washington, Beijing, and the world’s appetite for stability.
Glossary: Understanding the FTSE 100 and Market Language
FTSE 100 (Financial Times Stock Exchange 100)
Often pronounced “Footsie”, this is the UK’s leading stock market index. It tracks the 100 largest companies listed on the London Stock Exchange by market capitalisation. These are household names such as Shell, HSBC, AstraZeneca, and Unilever; collectively seen as a barometer of the UK’s corporate health and investor sentiment.
Market Capitalisation (Market Cap)
The total value of a company’s shares in the market, calculated by multiplying the share price by the number of shares in circulation.
Example: If a company’s share price is £20 and it has 500 million shares, its market cap is £10 billion.
Index
A curated list of securities (such as stocks or bonds) designed to measure the performance of a particular market or sector.
The FTSE 100 measures large UK-listed companies; the S&P 500 does the same for the US.
Constituent
A company included within an index. The FTSE 100 has 100 constituents, reviewed quarterly. If a firm’s market value falls, it may be replaced by a larger company from the FTSE 250.
Dividend
A portion of a company’s profits paid to shareholders, typically quarterly or annually. The FTSE 100 is known for strong dividend yields, making it attractive to income-focused investors.
Dividend Yield
A way of measuring the annual income a share provides relative to its price.
Formula: Annual dividend per share ÷ share price.
A 5% yield means £100 invested would pay £5 in dividends each year (before tax).
Earnings / Earnings Per Share (EPS)
A company’s profits after tax, divided by the number of shares it has. Analysts watch this to gauge financial health and growth potential.
P/E Ratio (Price-to-Earnings Ratio)
A measure of how expensive a company’s shares are relative to its profits.
A lower P/E can suggest a company (or market) is undervalued; a higher P/E suggests optimism about future growth.
Revenue Exposure
Where a company earns its money geographically. Many FTSE 100 firms earn 70–80% of their revenue outside the UK, which means global events and currency shifts matter more than domestic trends.
Sterling Weakness / Strong Pound
When the British pound falls in value against other currencies, the overseas earnings of FTSE 100 companies become more valuable in pound terms. This often helps lift the index.
Commodity Prices
The prices of raw materials like oil, gas, copper, and gold. The FTSE 100 is heavily influenced by these, as many of its biggest companies are global miners or energy firms.
Interest Rate Cuts / Monetary Policy
Decisions by the Bank of England that influence the cost of borrowing. Lower rates tend to lift stock markets (cheaper borrowing, higher valuations); higher rates often do the opposite.
Investor Rotation / Sector Rotation
When investors move money from one type of stock or region to another, for example, from US technology stocks to undervalued UK or European shares. These rotations can drive sudden market shifts.
Defensive Stock
Companies whose profits remain steady even when the economy slows, such as healthcare, utilities, or consumer staples. These form a strong base in the FTSE 100.
Volatility
How much prices move up and down over time. High volatility means large swings (uncertainty); low volatility implies stability. The FTSE 100 tends to be less volatile than US tech indices.
Undervaluation / Value Investing
When a company’s share price is lower than analysts think it should be, based on its fundamentals. The UK market has long been seen as undervalued compared with the US; part of what’s driving renewed interest.
Total Return
A measure combining price gains plus dividends over time. For UK investors, dividends often account for the majority of total returns.
Yield Curve / Bond Market Influence
Government bonds (gilts) compete with shares for investor capital. When bond yields fall, shares become relatively more attractive; when they rise, income investors may shift away from equities.
