Over the past few weeks, the FTSE 100’s pushed higher, making fresh all-time highs. It’s trading around 8,840 points, with the psychologically key 9,000 point level almost irresistibly close.
Yet, given the size and timing of the recent move, the index is potentially looking a bit overbought. Therefore, I thought I’d turn to everyone’s favourite AI-bot to see what objective information it would give me for the year ahead.
Getting the green light
ChatGPT thinks there’s a reasonable expectation that the index will surpass 9,000 points this year. It provided a couple of reasons to back this up. The first was analyst expectations. It cited different sources from the internet and reputable investment platforms that forecast growth for the index from the current levels.
The second reason was based around UK economic forecasts. For example, Morningstar analysts anticipate moderate economic growth for the UK this year, with inflation only slightly above target.
The team suggest that revised fiscal policies could provide more flexibility, potentially supporting higher valuations in the stock market. As a result, this could help to fuel a rally above 9,000 points.
Caution required
The problem with ChatGPT is that it’s purely objective. It doesn’t factor in sentiment or the view from the ground, which is why humans still have a significant role to play when it comes to making investment decisions.
For example, the latest inflation figure for January hit 3%, the highest level since last March. I know many people are tightening their belts again when it comes to discretionary spending.
This might not hamper FTSE 100 stocks today, but I think it could impact the index overall later this year. For example, consider Whitbread (LSE:WTB). The consumer discretionary stock’s down 23% over the past year.
The hospitality company owns Premier Inn, with most of the hotels in the UK, but also some exposure in Germany. It makes money from the hotel bookings, food and drink sales and associated add-ons.
I thought it was interesting that in a trading update for the recent Christmas/New Year period, UK accommodation sales were only up 2% versus the previous year. Total group sales actually fell 2% to £763m.
Looking forward, I feel Whitbread could struggle if the UK economy does slow down. Customers might decide to cut back on holidays or choose more budget alternatives. Of course, in my view, the risk is that fears around the UK are misplaced. If we reach summer and sentiment’s booming, the company has the potential to outperform massively.
Bringing it all together
I believe the FTSE 100 will break through 9,000 points shortly. But I think the index could have some form of healthy correction as we move into the summer. This could be driven by some investors banking profits, as well as the potential for a global trade war with US tariffs taking effect. Any slowdown in the UK economy could weigh on the market too. I’d expect consumer discretionary stocks to underperform in this period, so I’ll be staying away from Whitbread right now.
But should we get such a dip, I’d use it as the opportunity to load up on cheap bargains.
