Were now well into earnings season, so here are a few things you should consider before deciding whether to invest in the FTSE100 or not.
Growth & Yield
The FTSE is up 7.3% in the year to date, which is a respectable performance by comparison, the S&P 500 isup 2.7%, while Germanys DAX has risen 20%.
In spite of the imminent General Election, the index could gather pace into the second quarter, but the second half of the year will be more challenging, in my view.
Still, if you are on the hunt for long-term value, it could be a good time to invest ina cheap UKtracker,although Id rather build my own portfolio rather than investing in the benchmark.
There are some strong companies that offer a higher yield and less risk on capital appreciation and thats why you could beat the index.
Premium
The average yield of the FTSE 100 is about 3.4%. Based on metrics such as earnings multiples and historic trends, the index is overpriced by about 15% to 20%.
I am not concerned about the premium at which the index trades, as I assume it to be implicit in a low-yield environment and the logical consequence of the lower yield offered by alternative, less attractive asset classes.
But to determine whether the FTSE 100 is investable or not we need to read the signs coming from banks, miners and oil producers the main constituents of the FTSE 100 in the current earnings season.
ThatSinking Feeling
Lloyds reportsquarterly figureson Friday. Its worth considering that the quarterly trading update from Barclays on Wednesday did not move the needle. Its Barclaycard credit card business, in particular, is not living up to expectations. You could blame seasonality, but either way, thats bad for Lloyds and Royal Bank of Scotland, whose results are due tomorrow.
Other banks such asStandard Chartered and HSBChave made the news, but more for their attempt to scare the UK government by raising the issue of where theyll be based one year from now,than for their solid trading updates well see how HSBCs figures look like on 5 May, but Standard Chartered confirmed its in restructuring mode.
Elsewhere, results from TSB and Santanderwere essentially a non-event. So, based on trading multiples, fundamentals and a zillion of other factors, including dividend risk, most banks look incredibly overvalued and their performances could weigh on the index.
Oil & Miners
Antofagasta was at the bottom of the blue-chip index, down 2.4% after the copper producer cut is full-year copper output guidance, MarketWatch noted on Wednesday, adding that the broader mining sector is also under pressure asan official at Chinas central bank reportedly said that another round ofquantitative easing is not on the cards.
As Chinas slowdown continues, youd have to be very brave or just insane to bet on a bounce back for miners, many of which may have to announce less generous dividend policies as soon as were in the second half of 2015 Rio Tinto anybody?
Others
Next surprised investors on Wednesday, but I still believe that a short-term bounce wont prevent medium-term pain a correction in its equity valuationis overdue, I believe.
Trading updates from Centrica and British American Tobaccoshould not have caught you by surprise if youd read our previous coverage, while AstraZenecas plunge did not come as unexpected, either or did it?
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Alessandro Pasettihas no position in any shares mentioned. The Motley Fool UKhas recommended shares in Centrica. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makesus better investors.