Equities will struggle to make further headway

Stock markets have shrugged off the uncertainty created by Brexit, with the FTSE 100 rising by 19% since the EU referendum last year. However, the key supports of the rally have now faded. First, the pound looks set to consolidate its recent gains, curtailing the boost to multinationals’ overseas earnings in sterling terms. Second, while the economy has continued to grow robustly, the rise in equity prices is now out of kilter with what activity indicators would suggest. Finally, the boost to UK stock indices from their relatively high concentration in the mining and industrial metals sectors – which have benefitted from the recovery in global commodity prices since early last year – now looks to have run its course. As a result, we expect the FTSE 100 to finish the year at 7,500, a touch below its current level.