Is the FTSE 100 set for a surge past 8,000 points?

The FTSE 100 (INDEXFTSE:UKX) is down, but 2018 looks like it could still be a record year.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

In January I was firmly convinced that the FTSE 100 was on a bargain valuation at over 7,700 points, and I reckoned it still looked cheap compared to the world’s other top markets. And its average dividend yield was higher than it had been for years.

The UK’s top index has performed strongly over the past couple of years, with 2016 and 2017 having brought in total returns (including dividends) of 19% and 12% respectively. But that came after two years of losses, and we were looking at average returns over the four years of a little over 5% per year. 

Since then we’ve seen the UK’s top index falling right back down again to under 7,200 points, to give up all its recent gains and sit at a level that’s a shade below the same point a year ago.

Should you invest £1,000 in Unilever right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Unilever made the list?

See the 6 stocks

Don’t panic!

The trigger was a global panic which went round the world several times, with one flock of sheep taking up from where the previous flock left off as markets closed and opened in succession. And those who really don’t know any better have been horrified… “The stock market has lost how much?

So do I think I got it wrong and the FTSE was overvalued? Certainly not. What I reckon I’m looking at is an investment bargain that has just become even cheaper, and that’s great news for long-term investors.

All we have to do is look at the longer-term FTSE 100 chart, and we see a meagre 13% gain over five years. That was boosted by dividends, but it’s still poor when compared to the index’s longer-term returns.

Uncertainty

Interestingly, though we’ve been through some hugely uncertain times when investors typically shun riskier shares and seek safer blue-chips, the FTSE 250 has come out well ahead over the past decade. The smaller-cap index is up more than 90%, compared to just 26% for the FTSE 100 — surely another sign that the big one is undervalued now.

Most people investing today have lived through worse. The banking crisis was only a few years ago, and the dotcom crash of 2000 still seems like yesterday to many of us older investors. What both of those did, as with every dip that’s come along, was provide us with another opportunity to buy shares in great companies at knock-down prices.

What’s a good measure of the FTSE 100’s valuation? With the index made up mostly of mature blue-chip companies that are paying regular dividends, its average yield is surely one useful measure. AJ Bell‘s quarterly Dividend Dashboard summarises dividend forecasts across the index, and the last one in December 2017 indicated an average yield of 4.3%. 

Good value

That’s significantly ahead of the long-term average of around 3.4%, and since then it’s got even better. The FTSE 100 is now down 5.7% since the end of last year, and that pushes up the average dividend yield to a little over 4.5% (assuming no material degradation in forecasts).

I see the FTSE 100 as a very attractive income prospect right now — the best it’s been in years. If you buy now (perhaps via a low-cost index tracker), you should enjoy a far better income than you could get from a savings account.

And you can see any further recovery and subsequent gains as a bonus. The FTSE 100 may not be set to surge in the short term, but its long-term prospects are good.

Investing in AI: 3 Stocks with Huge Potential!

🤖 Are you fascinated by the potential of AI? 🤖

Imagine investing in cutting-edge technology just once, then watching as it evolves and grows, transforming industries and potentially even yielding substantial returns.

If the idea of being part of the AI revolution excites you, along with the prospect of significant potential gains on your initial investment…

Then you won't want to miss this special report inside Motley Fool Share Advisor – 'AI Front Runners: 3 Surprising Stocks Riding The AI Wave’!

And today, we're giving you exclusive access to ONE of these top AI stock picks, absolutely free!

Get your free AI stock pick

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

3 reasons Tesla stock may be a long-term bargain

This writer is keen to buy Tesla stock at the right price. He doesn't think it's there yet -- but…

Read more »

Investing Articles

Nvidia stock is a lot cheaper than before – or is it?

Nvidia stock has been caught in the whirlwind of market volatility. This writer has been waiting to buy, so might…

Read more »

Top Stocks

3 FTSE stocks Fools are eyeing up for choppy markets

A selection of companies listed on the UK stock market on the watchlists of four Foolish investors.

Read more »

Young Black man sat in front of laptop while wearing headphones
Investing Articles

A £10,000 investment in Rolls-Royce shares last week is now worth this…

Harvey Jones says Rolls-Royce shares couldn't escape the volatility of recent weeks, but wonders if the recent dip is a…

Read more »

The flag of the United States of America flying in front of the Capitol building
Investing Articles

Prediction: in 2 years these S&P 500 stocks will be much higher than they are today

These two S&P 500 stocks have been beaten down in recent weeks. But Edward Sheldon expects them to move much…

Read more »

Investing Articles

10% yields! Why a volatile stock market is great news for passive income investors

The recent stock market volatility has given passive income investors the chance to earn double-digit returns. But they still need…

Read more »

Close up of manual worker's equipment at construction site without people.
Investing Articles

Down 65% from its highs, this FTSE 250 stock is one to consider buying low

Shares in a strong FTSE 250 company going through a cyclical downturn have caught Stephen Wright’s attention as a potential…

Read more »

Investing Articles

£20,000 invested in a Stocks and Shares ISA 5 years ago is now worth…

Stocks and Shares ISA investors have reaped enormous returns since the pandemic, but how much money have they actually made?…

Read more »