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It’s easy to shrug at the return of the FTSE 100 in 2024 when compared to the S&P 500. But I don’t think it’s too bad considering all that UK investors have had to contend with.
Mixed year
We’ve had some good news, of course. Inflation returned to the Bank of England’s 2% target in May. A clear outcome to July’s General Election was also regarded as a positive, especially considering the political instability in other nations.
On the flip side, concerns in the weeks leading up to October’s doom-laden first Budget from Chancellor Rachel Reeves prompted many to sell assets in advance. A lack of new companies listing (and an increasing number wanting to move to the US) didn’t exactly portray the London Stock Exchange in the best light either.
But some believe the FTSE 100 could be set for a sparkling 2025. AJ Bell Investment Director Russ Mould thinks the index could even hit 9,000 by the end of the year.
Still a bargain
One reason is good old-fashioned value. UK stocks still look inexpensive relative to other countries and, in Mould’s view, “buying cheap, rather than blindly taking risk, is usually the best possible way of getting good long-term returns“.
For evidence of this, he draws on tech titan Apple. Analysts have the US giant generating the equivalent of £87bn in net income in 2025. That’s “barely half” what the companies in the FTSE 100 are projected to make collectively. And yet the iPhone maker is worth more than our entire index on its own!
By Mould’s calculations, the FTSE 100 would still only be trading on a price-to-earnings (P/E) ratio of 13.3 at 9,000. There would also be a 3.6% dividend yield to juice that return.
What could go wrong?
Clearly, this outcome isn’t nailed on. Indeed, Mr Mould believes that “any divergence from the expected macroeconomic path of cooling inflation, modest economic growth and falling interest rates” could put pressure on UK share prices. With a holding in housebuilder Persimmon (LSE: PSN), I’m sincerely hoping this scenario doesn’t play out.
Despite doing well for most of 2024, my position has suffered in recent months following a bounce in inflation. Although expected, the latter pushed the Bank of England to caution that the pace of rate cuts might be slower in 2025.
That’s not ideal for prospective property purchasers. It’s also another blow for a company like Persimmon that’s already facing higher costs as a result of the hike in National Insurance and new building regulations.
At least there’s a 5.5% forecast yield to tide me over. For now, this looks safe.
Who cares about 2025?
Ultimately, no one knows where the FTSE 100 or any other index will go next year or any other year. For this reason, I’m taking Mould’s target as an educated guess (as I’m sure he intended). I’d say the same thing to anyone suggesting that our stock market will definitely crash.
Given this, my strategy won’t change one jot. I’ll continue drip-feeding spare cash into the UK market — and elsewhere — for the simple reason that I don’t plan to touch it again for decades. That’s the only time horizon that’s important to this Fool.
