2024’s been a fantastic year for the FTSE 100. The UK’s flagship index has risen 6% since the start of the year, but after including dividends, this return jumps to 9.4%. And if we go back a bit further to the start of November 2023, investors have reaped closer to 23.5%! For reference, historically, the index has only typically generated a total annual return of around 8%.
But now the FTSE 100’s climbed so much, is there still any room left for further growth? Or is the British stock market on track for a cooling period with falling prices? Here’s what the experts say.
The forecasts are bullish
Despite the strong momentum seen to date, analyst projections seem to be quite optimistic for the next 12 months. According to the latest price predictions from The Economy Forecast Agency, the most optimistic forecast for the FTSE 100 over the next 12 months is 9,888 points, with the most pessimistic at 8,594 points.
In terms of return, that’s a potential capital gain of between 5% and 21% from today’s prices. And don’t forget about the extra 3.6% expected from dividends based on the current yield.
| Forecast | Lowest | Highest | Average | Average Return |
| 3 Months | 7,325 | 8,427 | 7,876 | -3.8% |
| 6 Months | 7,631 | 8,779 | 8,205 | +0.3% |
| 9 Months | 8,131 | 9,355 | 8,743 | +6.8% |
| 12 Months | 8,594 | 9,888 | 9,241 | +12.9% |
Looking at the projections table, some weakness is expected over the next three months. This isn’t entirely surprising. Some clawback of returns after a stellar run is to be expected. However, there’s also the calendar effect to consider, where investment fund managers close positions to harvest tax losses towards the end of the year.
But beyond this point, the FTSE 100 appears on track to continue its upward trajectory. There are a lot of growth catalysts at work, but arguably, two of the most influential are the continued decline in interest rates and the higher expected GDP growth following the new government Budget.
Taking a step back
It’s critical to remember that forecasts are inherently flawed. They rely on a lot of assumptions that often don’t come true, making them fairly blunt instruments rather than precise measuring tools. As such, investors may end up earning less than expected by this time next year.
It’s also important to remember that just because the FTSE 100’s expected to increase, it may not be the same story for all its constituents. Looking at Rolls-Royce (LSE:RR.), the engineering titan has also delivered some tremendous performances lately. But forecasts are becoming increasingly conservative.
With a lot of its upward momentum being driven by the recovering travel market, growth in its Civil Aerospace division could be in for a major slowdown. That’s because airliners have already started reporting a weaker pricing environment.
Since a large part of the firm’s revenue stems from engine maintenance, fewer flying hours means lower demand for its services. To be fair, the group’s other segments are performing admirably, with Power Systems in particular on track to deliver potentially explosive growth with its modular nuclear reactor technology by 2030.
However, until it grows into a more meaningful contributor to revenue, the business remains highly sensitive to air travel. So even if the FTSE 100 index rises, there’s no guarantee Rolls-Royce will follow.