When markets move, the FTSE 100 tells the story

Originally Posted, 27 February 2024 – When markets move, the FTSE 100 tells the story

As we celebrate the FTSE 100 Index’s 40th birthday, we bring you fresh insights and intelligence from our market experts.

The UK share market’s most popular equity index has helped tell the story of the main market-moving events of the last four decades, including crashes, currency crises, political upheavals and a global pandemic.

• The FTSE 100 was launched in 1984 as a new tool for traders and investors to manage portfolios and risk, and soon became the most popular gauge of the UK stock market’s health.
  
• The FTSE 100 has recorded the UK equities’ bull market of the 1980s and 1990s, as well as the turbulent periods of market crashes, currency crises, political upheavals, and global pandemics.
• The FTSE 100 has served its purpose by giving a real-time view of financial conditions and helping the UK share market remain open for business throughout all these historic events.

The 1980s saw a boom in cable television and the introduction of 24-hour news, entertainment and music channels to meet the vast new programming opportunities. 

Launched on 3 January 1984, the FTSE 100, an index representing the largest and most tradeable London-listed stocks, soon featured in television news reports as the most popular gauge of the UK stock market’s health.

In the internet age, we take the availability of up-to-date financial market information for granted. 

So it’s easy to forget what a step change the FTSE 100 was for the UK equity market. 

Before January 1984, the most popular and widely used index of UK equities, the FT Actuaries All-Share index (now the FTSE All-Share index), was only calculated daily.

Suddenly, traders and investors had a new tool to manage portfolios and manage risk (the FTSE 100 was designed in part to enable the launch of a new futures contract on the London International Financial Futures Exchange—LIFFE).

The FTSE 100 index’s rapid increase from its 1984 starting level of 1000 recorded UK equities’ bull market of the 1980s and 1990s, with the index topping 7000 in early 2000. But the journey was at times a turbulent one.

When global stock markets crashed in 1987, the FTSE 100 was the lead story on the UK’s national evening news.

“Western government leaders and stock market officials tried to talk the world’s financial floodgates shut today. They failed in London where the FT-100 index (now the FTSE 100) all but matched yesterday’s record 250-point fall,” BBC presenter Philip Hayton told alarmed nine o’clock news viewers on 20 October 1987.

The 100-share index had plummeted 22 percent in two days, the biggest market decline since the Wall Street Crash of 1929.

There have been other dramatic UK equity market moves during the last four decades. 

The UK’s forced 1992 exit from the European Exchange Rate Mechanism brought a sterling collapse but some respite for UK equities—the FTSE 100 rose from ‘Black Wednesday’, September 16, to year-end. 

The FTSE 100 dropped 31% in 2008 as a result of the financial crisis, its worst annual performance since the index’s 1984 launch. It then regained this loss over the two following years.

The 2016 Brexit vote caused more upheaval, with the FTSE 100 falling 8% in the first hour of trading after the announcement of a ‘No’ vote. The 2020 outbreak of the coronavirus pandemic brought another swift decline, then a rapid recovery after massive government intervention into financial markets. 

During all these historic events, the FTSE 100 served its purpose by giving a real-time view of financial conditions. In turn, the index also helped support the continuing functioning of the UK share market. 

Unlike some other global stock markets, the London Stock Exchange remained open for business throughout.

It’s almost certain that in the coming decades we’ll see market-moving events of similar scale, though we don’t know the trigger for the next large upswing or decline. What is certain is that the FTSE 100 will be there to accompany them.