FTSE 100 hits record high – where to next?
Now that the FTSE 100 hit a new all-time high amid a weak sterling and rate cut expectations, how much further can it rise?
FTSE 100 trades in record highs
The FTSE 100 has risen by around 2.75% year-to-date and on Friday 17 January 2025 hit a new record high near the 8,500 mark by exceeding its May peak.
Within a couple of weeks the FTSE 100 has already nearly achieved half of its 5.7% 2024 gain amid positive tailwinds such as a weaker British pound sterling, low Price to Earnings (P/E) ratio and high dividend yield making it an attractive proposition for investors.
FTSE 100 year-to-date peer performance comparison chart
Despite its great outperformance versus the FTSE 250, which this year hasn’t seen any gains yet, and even US indices such as the S&P 500, the FTSE 100 is still underperforming its European counterparts which have so far risen by close to 5% in the past couple of weeks.
FTSE 100 seen as undervalued
The shift away from US large cap stocks, especially the Magnificent Seven and ‘expensive’ technology stocks with high P/E ratios, has benefitted the FTSE 100 and European stock indices as fund managers find their shares more attractive. This is especially the case since the strong US dollar makes US stocks more expensive and the weak euro and pound sterling European shares relatively cheaper.
The majority of UK shares in the FTSE 100 generate substantial overseas revenues, benefiting from pound weakness.
Sterling's 9% decline against the dollar from its September peak makes UK exports more competitive while increasing the value of foreign earnings when converted back to sterling.
Major stock indices 2024 returns, PE ratios and dividend yields
The FTSE 100’s low P/E ratio
The FTSE 100’s low P/E ratio of 12.22 for 2024 makes UK blue chip shares attractive compared to the “expensive” P/E of 25 for the S&P 500 or the 33.1 of the Nasdaq 100. This is why fund managers decided to rotate out of US, especially mega cap, shares into “cheaper” European ones at the start of the year.
Dividend outlook and share buybacks make the FTSE 100 attractive
Share investing in the FTSE 100 offers compelling dividend yields.
Analysts project £83.9 billion in dividend payments for 2025, with further growth to be expected in 2026.
The projected dividend yield stands at 3.8% for 2024 and 4.0% for 2025, based on ordinary payments alone. These are amongst the highest amid global stock indices.
Additional shareholder returns through share buybacks, with around £56.5 billion in 2024, demonstrate corporate confidence in the UK stock market.
While specific figures for 2025 are not yet available, analysts expect that this trend will continue, with share buybacks remaining a significant component of shareholder returns. This expectation is supported by the robust cash generation of these companies and their ongoing efforts to increase shareholder value.
The actual amount of share buybacks in 2025 will depend on various factors, including broader economic conditions, UK interest rates, monetary policy decisions and their impact on sterling, individual company performance, and strategic capital allocation decisions. Investors should monitor company announcements and financial reports for specific details as they become available.
FTSE 100 technical analysis
With the FTSE 100 having exceeded its May peak, and in doing so hit a new all-time high close to the 8,500 mark, the question on investors’ lips is how high the index may go in 2025?
FTSE 100 daily candlestick chart
The next upside target sits at 8,642. It can be derived by taking the distance of the April-to-May 2024 advance, that is to say 729 points, and projecting it upwards from the August 2024 low at 7,913.
Another potential upside target is the 8,723 level. It is found by adding the 729-point April-to-May 2024 ascent to the December 7,994 low. Further up lies the 9,000 mark, a round number, and thus psychological target.
The 8,418-to-8,364 June-to-December major key resistance area, now because of inverse polarity a support zone, should be seen as a medium-term technical buying zone for investors who missed this week’s upward surge in the UK blue chip index.
While the 8,364 June peak underpins on a daily chart closing basis, the FTSE 100 short-, medium- and long-term trends stay bullish.
Only an unexpected bearish reversal and fall through the 14 January low at 8,180 would lead technical analysts to question the current bullish scenario.
How to trade the FTSE 100
- Research current market conditions and understand the factors affecting UK stocks
- Choose whether you want to trade or invest
- Open an account with IG to access UK markets
- Select your preferred trading instrument and develop your strategy
- Monitor your positions and manage risk appropriately
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