The FTSE 100‘s on a roll. It’s just nudged to another all-time high of 8,735, having climbed 5.75% year-to-date. It’s up 15% over the last year.
Throw in the average yield of 3.5% and share buybacks, and that’s a total cash return of more than 20%. Who said the UK stock market couldn’t cut it?
This raises the question: how much further can it go? Another 3% will take us to 9,000. But what about 10,000? That requires a 15% surge from here.
Can blue-chip stocks keep flying?
I decided to ask ChatGPT. Artificial Intelligence (AI) can’t tell the future anymore than I can. But I was still intrigued to see what it would say.
The chatbot highlighted three big positives. First, the FTSE 100’s cheap compared to US markets with an average price-to-earnings (P/E) ratio of 15.5. The S&P 500 trades at 27 times. Those are my figures, not ChatGPT.
This could attract value-focused investors looking for bargains, it said, “If sentiment shifts in favour of UK equities, we could see a sustained rally“.
ChatGPT also suggested the UK might avoid the worst of Donald Trump’s trade tariff wars. We’ll see. Even AI can’t figure out the workings of Trump’s mind.
My robot buddy noted that the Bank of England has just cut interest rates to support the UK economy. It may cut again. “Lower rates tend to be bullish for equities, particularly those with high yields, such as many FTSE 100 constituents”, it noted.
I’d add that they’d also weaken the pound, which would boost overseas earnings when converted back into sterling. Note: 78% of FTSE 100 revenues come from abroad.
As ever, there are threats. While the FTSE 100 isn’t a direct reflection of the domestic economy, weak UK growth could still hit investor sentiment. “Stagnation or a technical recession could lead to market jitters”, ChatGPT cautioned.
How China has hit Glencore shares
Geopolitical tensions over Russia and the Middle East could add further market volatility. China’s economic struggles also pose a threat, ChatGPT said, noting: “Many FTSE 100 mining companies and consumer goods firms rely on strong demand from Asia“.
I’ve seen this with my stake in Glencore (LSE: GLEN). Commodity stocks have been punished by China’s struggles, which snapped up 60% of global supply for years.
The Glencore share price is down 10% over one year and 35% over two. Yet it looks good value with a P/E of 10 times. And it generated enough cash to cut net debt by $1.3bn between January and June last year. Debt’s now down to $3.6bn.
Glencore’s trailing yield of 2.9% doesn’t look great, but is forecast to hit 5.4%. Many assume the energy transition will drive demands for metals such as aluminium, zinc, cobalt and copper, but that’s not 100% certain. Innovation could deliver cheaper alternatives. Commodity stocks are cyclical. I’ll give Glencore time to swing round.
So what about that 10,000 target? AI concludes: “While I remain cautiously optimistic, a move to 10,000 will require a perfect storm of bullish catalysts”.
Personally, I agree. 10,000 is a stretch this year. But it’ll get there one day. While I wait, I’ll keep buying blue-chip stocks and reinvesting my dividends. They look terrific value today. That’s me talking. Not a robot.
This post was originally published on Motley Fool
