FTSE 100 Hits New High: Is a Hidden Portfolio Trap Looming?

• The FTSE 100 touched a fresh record above 10,500, extending a three‑day rally.
• UK unemployment rose to 5.2%, the highest since 2021, while wage growth hit multi‑year lows.
• Analysts expect another Bank of England rate cut, fueling mortgage‑affordable optimism.
• Top gainers include RELX (+3.3%), Experian (+2.1%) and Pearson (+2%).
• Commodity‑heavy stocks like BHP surged on earnings beats, whereas Antofagasta slumped on disappointing results.

You’re watching the FTSE 100 climb, but the real story is the risk beneath the rally.

FTSE 100 Hits Record: Could the Surge Hide a Portfolio Trap?

Why the FTSE 100’s Record Surge Might Mask Underlying Weakness

The index’s 0.3% gain may look like a straightforward victory for risk‑on traders, yet the macro backdrop tells a different tale. A softer labour market—unemployment at 5.2% and wage growth flattening—has rekindled expectations of a Bank of England rate cut. Lower rates usually boost equity valuations, but they also signal that the economy is losing momentum. When growth stalls, corporate earnings can falter, turning today’s headline‑making rally into a potential over‑extension.

Impact of Weak UK Labour Data on Monetary Policy Outlook

The Office for National Statistics (ONS) reported a surprising rise in unemployment and a dip in payroll activity, suggesting hiring is cooling faster than anticipated. The Bank of England typically leans on such data to calibrate its policy stance. A third consecutive rate cut could push short‑term yields lower, widening the equity‑bond spread and encouraging investors to chase higher‑return assets like the FTSE 100. However, each cut also erodes the central bank’s credibility and may embed inflation expectations, creating volatility when the next data point arrives.

Sector Winners and Losers: Who’s Riding the Rally?

Within the broader index, the performance is uneven. Information services heavyweight RELX led the pack with a 3.3% jump, buoyed by strong subscription renewals and a resilient advertising market. Experian and Pearson also posted solid gains, reflecting a continued appetite for data‑driven credit solutions and education services.

On the housing front, Persimmon and Berkeley each added 1.5%, as lower mortgage rates improve affordability for first‑time buyers. Conversely, commodity‑linked Antofagasta fell 3% after its annual results fell short of expectations, highlighting that not all sectors benefit equally from a rate‑cut environment.

Historical Parallels: Past FTSE Peaks and Subsequent Corrections

History offers a cautionary lens. In late 2018, the FTSE 100 briefly breached a new high amid optimism over Brexit negotiations. Within weeks, the index slipped 5% as political uncertainty resurfaced. A more recent example is the early‑2022 rally when the index hit 7,900 on hopes of a post‑pandemic recovery, only to tumble after the Bank of England signaled a faster‑than‑expected tightening cycle.

Both episodes share a common thread: a bullish rally driven by policy expectations, followed by a sharp correction when the macro narrative shifted. Investors who entered at the peak often faced outsized losses.

Technical Signals: Is the FTSE 100 Overbought?

From a technical perspective, the FTSE 100’s 10‑day Relative Strength Index (RSI) now sits near 78, well above the typical overbought threshold of 70. Moreover, the index is trading above its 200‑day moving average, a classic bullish signal, but the distance has widened to a historical maximum. When an index rides far above its long‑term trend line, momentum can evaporate quickly, especially if new data—like a rise in unemployment—feeds risk‑off sentiment.

Investor Playbook: Bull vs. Bear Cases

Bull Case: If the Bank of England delivers another rate cut in March, mortgage‑linked sectors (housebuilders, REITs) could enjoy a further uplift. Additionally, a softer labour market may keep corporate cost pressures low, supporting earnings for data‑driven firms such as RELX and Experian. In this scenario, a continued modest rally to 10,800 is plausible.

Bear Case: Should the labour data trigger concerns about a prolonged slowdown, the Bank may pause cuts, leading to a sudden shift in risk appetite. An overbought technical profile combined with a potential earnings disappointment from commodity exporters could spark a 5‑7% correction, erasing the recent record high.

Smart investors might consider a balanced approach: hold exposure to resilient data and education stocks, trim pure‑play commodity positions, and keep a modest cash reserve to capitalize on any pull‑back.