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I think the UK stock market is very cheap at the moment. And checking out what the experts say, it seems many of them see good value too.
He FTSE 100 It has a price-to-earnings (P/E) ratio of around 11, well below its long-term average. On the contrary, the S&P 500 In the US it has a P/E of 25. The Footsie seems cheap to me.
And that's when earnings are expected to rise and dividend payments to reach an all-time high over the next two years. Well maybe.
Don't buy?
Why doesn't everyone buy all these cheap stocks and drive the prices up again?
I can see a few reasons. The key, for me, is uncertainty. The more uncertain the outlook, the greater the short-term risk.
And that deters people from buying, especially those who opted for gold or cash in recent years as a defensive measure. They won't want to risk getting back in too soon.
Volatility first?
Kyle Rodda, senior market analyst at Capital.com, sees another reason why stocks could be volatile ahead of any new bull run.
He points out that the forecast “The level of earnings growth is at odds with a slowing economy.…”.
Broker forecasts have been slowly narrowing over the past year and there has to be a good chance we'll see more of that. So that's more uncertainty.
Slow growth
The Economist predicts global economic growth of 2.2% in 2024. And that's actually a pretty poor outlook. To make matters worse, UK forecasts for 2024 suggest only around 0.5%. Oh.
However, that might not mean a weak stock market. If investors think that 2025 and beyond will be better, they may still consider stocks cheap now and start buying. At least, those with a horizon beyond the very short term.
If there is one key factor, I would say it has to be interest rates. Prolonged high rates from the Bank of England (BoE), at a time when we could be very close to recession, are scary.
Inflation drop
The latest predictions put UK inflation below 2% by spring. So could the Bank of England be forced to change course and have to look for stimulus? More uncertainty, again.
What about the FTSE 100 itself? There are not many bullish predictions at the moment. But estimates appear to average between 8,000 and 8,200 points by the end of the year.
I don't pay much attention to that kind of thing. But that is not unreasonable optimism, far from it.
What should we do?
I'm in the camp that thinks the UK stock market could have a more volatile few months ahead.
And until the economic outlook, earnings forecasts, and interest rates start to look like they're heading in the same direction, I doubt there's much chance for sustained growth.
But doesn't that make it the best time to buy stocks and hold them for the long term? When all this uncertainty keeps them cheap? I think so.
