Investors will be looking for WPP Group to reinforce the rising optimism when it reports results next Friday, as the world’s third biggest advertising firm is one of the most exposed blue chips to revival in the economy.
Several analysts and investors said the FTSE looked primed to extend gains, although it could struggle to build momentum until trading volume picks up in September.
“The global economic outlook is certainly improving, and allied to that we’ve had a pretty strong reporting season both in the US and in (mainland) Europe and the UK,” said Graham Secker, equity strategist at Morgan Stanley.
“We think over the second half of the year that could provide further support.”
Good news from drugs companies such as AstraZeneca, generally upbeat earnings from banks and renewed appetite for telecoms have fuelled the rise, taking blue chips up 8% on the year and 30% above their March low.
Investors are braced for WPP’s first-half profits to fall due to the weak US dollar and a drought of ad spending in Britain.
But improving signals from North America, where WPP generates 40% of its revenue, have lifted hopes that chief executive Martin Sorrell might offer some signs of daylight in the long-suffering advertising market.
Britain’s biggest biotech company Celltech should reassure investors when it releases first-half results on Tuesday, after it said in May it was performing well and was comfortable with full-year expectations.
Other midcap stocks reporting include recruitment company Michael Page, engineering services firm Weir Group and consumer lending firm Cattles.
The release of economic data picks up at midweek when minutes from the latest Bank of England meeting are expected to show a unanimous decision to hold rates, but it could say downside risks remain. The following two days see the release of British business investment, retail sales and GDP data.
Derek Mitchell, director of British equities at Isis Asset Management, said recent data had given investors “confidence that better times are here and we can look forward.”
Mr Mitchell said although the FTSE’s move above 4,200 points was not yet a decisive break, further gains could be fuelled if there is a pick-up in business spending.
“That’s what’s been missing, and if we see a pick-up there, there’s a lot of inventory rebuild that can add substantially to some of these share prices,” he said.
But some warned that economic data had not been good enough to justify a sustained rally, and valuations were stretched.
“Investors have got the wind in their sails and that can regularly take markets further than fundamentals justify and that could happen now,” said Alex Scott, analyst at Seven Investment Management.
“But I think investors have got to be aware of the risk that valuations run too far and markets dislocate from economic reality.”