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On March 22, the FTSE 100 It touched 7,961 points, just below 8,000. She briefly surpassed that level in early 2023, but simply couldn't hold on.
Will it be able to surpass 8,000 points again soon and then stay there? I would say the chances of that happening are increasing, for several reasons.
cheerful outlook
The key is to improve investor sentiment.
Russ Mold, chief investment officer of an investment firm AJ Bellsaid that”Everything has been focused on the interest rate decisions of central banks and, although the US and the UK kept their rates level, everything turns on what could happen next, and confidence is growing that soon we will see rate cuts.“.
He added that “risk appetite is increasing; Businesses are slowly becoming more optimistic and people are making money.“.
And that has to be good for the stock markets, right?
Profits increase
Well, we need two things for that. In addition to a positive outlook from investors, we need some solid fundamentals to support optimism. And I think that's been improving for some time now.
Forecasts suggest the FTSE 100's total pre-tax profit should exceed £250bn in 2024 and rise further in 2025. In 2018, when the FTSE 100 was approaching 8,000 points and before Covid took it down , that figure was below £200 billion.
I'm also seeing a number of results showing strong cash generation. We are getting strong dividends and new share buybacks.
Big dividend
As an example, let's see Phoenix group holdings (LSE: PHNX).
The stock had had a huge expected dividend yield of around 11%. So why weren't investors buying the stock, driving up the share price and forcing the yield down?
I think the two key things we're missing for this one. The feeling had been somber. And we really had no evidence to support the brokers' optimistic forecasts.
Best results
Then we got the fiscal year results, the company announced a progressive dividend policy, and suddenly the yield looks more realistic. And the stock price jumped that day.
It is still in a risky cyclical sector and the insurance business faces new regulations. And Phoenix stock might even be fully valued. But it's an example of the change I see happening.
The rest of 2024
Speculation is growing that we could see up to four interest rate cuts from the Bank of England by the end of the year. And we might even see the first one in May.
If they happen, it will probably be a quarter point at a time. But that could reduce the base rate to 4.25%. And that should put the attraction back into the stock.
I think we could still see a shaky first half this year. And all this talk about Footsie levels shouldn't drive our investment decisions anyway. For that, the only thing I care about is the real valuations and dividends of the companies themselves.
But, just for fun, I'm guessing the FTSE 100 will hit 8,500 by the end of the year.
