As a good investor, I always take decisions based on my own viewpoint. However, I’m always keen to get the opinion and view of others I respect. So when it comes to the direction of the FTSE 100 next year, I believe it’s moving higher towards 8,000 points. But what do some of the top analysts from major banks forecast?
Looking at the numbers
From those I’m able to view, the top forecast is from Deutsche Bank at 8,800 points. The lowest is from French bank Société Générale at 7,400 points. As for the major banks I look at, both Barclays and HSBC are targeting 8,100 points. All of these figures are for the end of 2024, so just over a year out.
Given that the FTSE 100 is currently at 7,646 points, there’s a split between the banks. Some see it lower, whereas the top view at 8,800 points would mark a 15% increase. From looking at the overall numbers, there’s a definite bias towards a move higher in 2024.
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Why the index could rally next year
The key theme that could help to support a stock market rally would be lower interest rates. The latest UK inflation print showed it’s now at 3.9%. It has more than halved from the start of the year, showing that the policy of aggressively hiking interest rates has worked.
I expect inflation to continue to fall in early 2024, to the 2% target level. As a result, I believe that interest rates will be cut back to a more normal level around of 3-4%.
This should spark a rally in the stock market as investors cheer the good news. Not only that, but companies will feel the benefit of lower inflation. This should mean easing cost pressures of raw materials, as well as labour costs. Given that profit is simply revenue minus costs, 2024 could be a more profitable year for many in the lead index.
Risks that could see a fall
Given that the constituents of the FTSE 100 are global firms, I need to be aware of risks not just in the UK. For example, this year has seen heightened geopolitical tensions. This includes the ongoing Russia/Ukraine conflict, as well as Israel/Gaza. If 2024 brings with it more conflicts that threaten global stability, I think the stock market could struggle.
Another point to remember is that next year sees both the UK and US elections. It’s too early to tell which parties might win, but history tells us that the market can be very volatile around such periods. If this is a negative surprise to what people were expecting, the FTSE 100 could fall.
My game plan
Based on my own positive view relating to interest rates and the forecasts from analysts, I’m going to stick to my investing plan. This involves picking up good FTSE stocks along the way, but always leaving some cash on the side. I use this cash to pick up interest in my savings account, which I can deploy in the market should we see any unexpected drop.
