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It's easy to shrug your shoulders at the return of FTSE 100 in 2024 compared to S&P 500. But I don't think it's that bad considering everything UK investors have had to deal with.
Mixed year
We have had good news, of course. Inflation returned to the Bank of England's 2% target in May. A clear result of the July general election was also seen as positive, especially given political instability in other nations.
On the other hand, concerns in the weeks leading up to Chancellor Rachel Reeves' first doom-and-gloom budget in October led many to sell assets early. The lack of new publicly traded companies (and a growing number wanting to move to the US) doesn't exactly reflect the situation. London Stock Exchange in the best light either.
But some believe the FTSE 100 could be set for a bright 2025. AJ Bell Chief Investment Officer Russ Mold believes the index could even reach 9,000 by the end of the year.
Still a bargain
One reason is good old-fashioned value. UK shares still look cheap compared to other countries and, in Mold's view, “Buying low, rather than blindly taking risks, is often the best possible way to get good long-term returns.“.
As proof of this, turn to the technological titan Apple. Analysts estimate that the American giant will generate the equivalent of £87 billion in net income in 2025. That is “barely half”What FTSE 100 companies are expected to earn collectively. And yet, the iPhone manufacturer is worth more than ours complete index alone!
By Mould's calculations, the FTSE 100 would only continue to trade at a price-to-earnings (P/E) ratio of 13.3 to 9,000. There would also be a 3.6% dividend yield to take advantage of that yield.
What could go wrong?
Clearly, this result is not clear. In fact, Mr. Mold 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 participation in a home builder Khaki (LSE: PSN), I sincerely hope that this scenario does not play out.
Although I did well for most of 2024, my position has taken a hit in recent months following a spike in inflation. Although expected, the latter led the Bank of England to warn that the pace of rate cuts could be slower in 2025.
That's not ideal for potential property buyers. It is also another blow for a company like Persimmon which is already facing higher costs as a result of increased national insurance and new building regulations.
At least there is a 5.5% return forecast to help me. For now, this seems certain.
Who cares about 2025?
Ultimately, no one knows where the FTSE 100 or any other index will go next year or any year for that matter. For this reason, I take Mold's goal as an educated guess (as I'm sure he intended). I would say the same to anyone who suggests that our stock market will definitely crash.
With this in mind, my strategy will not change one bit. I will continue to pump surplus money 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 important time horizon for this Fool.
