It’s no secret that the FTSE 100 has been on a rampage over the last two years. Index investors have reaped a chunky 21.2% total return since November 2022, far outpacing the 6% annual average we’ve seen across the past decade. And yet despite this tremendous performance, analysts are still forecasting even more growth on the horizon.
The latest projections from the Economy Forecast Agency put the UK’s flagship index as high as 9,637 points by this time next year. Compared to current levels, that’s a potential 18.6% gain before even counting the impact of dividends.
It might not happen, of course, and forecasts need to be taken with a pinch of salt. But what’s behind this bullish prediction? And which FTSE 100 stocks do I think investors should be paying attention to?
Catalysts for growth
Despite what the stock market’s performance indicates, 2024’s been quite an uncertain year for many UK businesses.
Nerves were rising during the run-up to the July general election, given the different economic policies put forward by the Conservative and Labour parties. Then, all eyes turned to the highly anticipated October Budget by the newly elected government. And during all this political uncertainty, pressure from interest rates, even as they dropped, continued to impact businesses’ financials and their decision-making.
But today, most of the political uncertainty has evaporated. And while not everyone is pleased with the latest Budget, the clarity enables companies to make more informed decisions. As for interest rates, they currently stand at 4.75% versus their peak of 5.25% at July.
Another rate cut’s expected in December. But providing inflation remains cool, rates could fall significantly throughout 2025 to an estimated 3.75%. In other words, the cost of debt for households and corporations may be on track to tumble by 30% from its peak. And apart from alleviating pressure on balance sheets, it also helps spark economic growth across the board.
With that in mind, it’s no surprise analysts are bullish for 2025.
What to watch
Even if the best-case scenario occurs, there’s always the possibility that growth is already baked into valuations. As such, the FTSE 100 may still fall short of expectations.
That’s why when looking to capitalise on this trend, I’m zooming in on the stocks that are currently heading in the wrong direction. One company that’s already in my portfolio is Howden Joinery Group (LSE:HWDN).
Over the last 12 months, the fitted kitchen and bedroom specialist has actually performed fairly admirably, rising 25%. Yet, since mid-September, the stock price is down by double-digits. Investor concerns have been rising as the entire home renovation sector’s getting hit hard.
Demand is currently quite weak as families postpone projects into 2025 in anticipation of lower interest rates. And the impact of this is quite clear on Howden’s financials, with year-to-date UK growth sitting at just 1.7%, against its double-digit historical average. And while earnings remain on track, management’s warned they’re likely to fall towards the lower end of guidance.
While frustrating, the firm has more than enough cash to see it through the storm. And with its shares trading lower, an opportunity might have emerged for patient investors to research. After all, when interest rates drop, home renovation should rise.
