FTSE 100 Index near one-month high: ​Will FTSE 100 hit 9,000?

The UK's FTSE 100 Index reached a one-month closing high on Monday, riding a wave of global gains sparked by Scott Bessent's nomination as U.S. Treasury Secretary.

In contrast, Kingfisher saw its shares decline sharply following a profit warning from the home improvement retailer.

FTSE 100 Index: The Great Underperformer

The FTSE 100 has risen approximately 7.5% year-to-date (YTD), slightly outperforming the STOXX Europe 600 index. However, it is significantly lagging behind some of its European counterparts, such as the DAX 40, and U.S. indices like the NASDAQ 100, which have gained over 15% and 25% respectively.

Pound Sterling Depreciation to Benefit FTSE 100 Index

The recent 6.5% decline of the British pound sterling against the US dollar, along with a 3.5% drop against China’s renminbi and the euro, is likely to benefit the FTSE 100. This is largely because most companies in the index are global players that generate a significant portion of their revenue from outside the UK.

A weaker pound makes UK exports more competitive, while FTSE 100 firms selling products and services in foreign currencies can enhance their profits in sterling terms.

The US market remains the primary battleground for the FTSE 100 Index, especially as China, the world's second-largest economy, is currently not contributing much to economic growth. Meanwhile, Japan, the third-largest trading partner, is raising interest rates rather than cutting them. Germany, the fourth-largest market, has experienced four consecutive quarters of negative GDP growth in the past seven.

FTSE 100 Fundamental Outlook: Dividends and Share Buybacks

The dividend outlook for the FTSE 100 Index appears stable, with analysts forecasting £78.6 billion in payments for 2024, reflecting a modest 1% year-on-year increase. Projections indicate a further growth of 7% to £83.9 billion in 2025, although this still falls short of the all-time high of £85.2 billion achieved in 2018.

According to AJ Bell's latest report from October, the expected dividend yield is 3.7% for 2024 and 4.0% for 2025, based solely on ordinary dividend payments.

Additionally, FTSE 100 companies have announced £49.9 billion in share buyback programs for 2024, following £52 billion in 2023. This indicates significant returns to shareholders beyond traditional dividends.

The scale of these buybacks also reflects corporate confidence in valuations and future prospects. This trend has created attractive investment opportunities, particularly as bargain hunters have recently entered the market around the psychological level of 8,000.

9,000: A Feasible Target for the FTSE 100?

Historically, the FTSE 100 Index tends to trade sideways for several months before establishing a new, higher equilibrium. We anticipate a similar shift in 2025. Just as the ascending triangle pattern in 2023 was eventually broken in early 2024, leading to this year's gains, we expect a potentially bullish continuation triangle to drive the FTSE 100 higher in 2025.

For this bullish movement to materialize, the index must not only break above the downtrend line from May to November at 8,376 but also surpass the July to October highs, which range from 8,395 to 8,414. If this occurs, a breakout from the bullish triangle and a rise above key technical resistance on the weekly chart could propel the FTSE 100 to a new record high. With a potential triangle formation width of nearly 600 points, the psychological target of 9,000 could be within reach for the FTSE 100 in 2025.

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Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.