FTSE 100 Index Forecast 2024
After being the world’s only major stock index to record a gain in 2022, the FTSE 100 had a more muted year in 2023 compared to other top indices.
The index closed last year with a gain of less than 4% (not accounting for dividends), paling in comparison to its transatlantic rival, the S&P 500, which rose 24%. But what does the FTSE 100 forecast in 2024 look like?
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Historical FTSE 100 Performance
Before we get started on the FTSE 100 forecast for 2024, let’s take a quick look at the historical performance of the FTSE 100. In the table below, we have highlighted the total annual return of the FTSE 100 in the last 10 years.
Largely thanks to high exposure to defensive industries - such as health care, utilities and tobacco – the FTSE 100 proved resilient amidst market turmoil in 2022.
In 2023, the FTSE 100 closed at an all-time high of 8,012.53 on 16 February, shortly after the index broke the 8,000 point barrier for the first time in its 40-year history. Will this year bring a higher high? Let’s take a look at the FTSE 100 outlook for 2024.
FTSE 100 Outlook
Despite its high exposure to defensive industries, the FTSE 100 is also made up of many companies which operate in cyclical industries – such as miners and banks. In order to truly thrive, therefore, the index undoubtedly benefits from a growing economy. However, the UK economy hasn’t started 2024 on the best of notes.
Gross Domestic Product (GDP) figures released in February revealed that the UK slipped into a technical recession in the second half of 2023, following two consecutive quarters of negative growth.
Inflation and high interest rates have weighed on economic activity. Over the entire course of 2023, UK GDP is estimated to have grown by a paltry 0.1%. This figure is expected to increase moderately to 0.6% in 2024.
What does this mean for the FTSE 100 forecast in 2024? Although a sluggish UK economy is not ideal for the FTSE 100, it’s worth remembering that the index contains many large multinational companies with a global presence.
Approximately 75% of the index’s total revenue is generated overseas, meaning that the FTSE 100 outlook is largely dependent on that of the global economy, as opposed to just that of the UK. In 2024, the global economy is anticipated to grow by 3.1%, the same as it is estimated to have grown by last year.
FTSE 100 Index Forecast
The start of 2024 has seen the UK’s premier stock index lag behind the majority of its foreign rivals. A slowing economy, falling commodity prices and poor sentiment surrounding UK stocks have all played a role.
However, not all is doom and gloom. Despite many predictions last year of a global recession, the world’s economy has proven to be resilient. Although the UK has technically entered recession, it is expected to be a shallow one.
Inflation is falling back towards target levels and, consequently, central banks are anticipated to begin cutting rates this year. Although necessary to bring inflation to heel, aggressive tightening of monetary policy over the last two years has stifled economic growth. A loosening of policy in 2024 would help spur growth and is likely to benefit the FTSE 100.
Furthermore, weak sentiment surrounding UK stocks has led to the FTSE 100 trading at a low valuation. At the turn of the year, the index was trading at around 11 times earnings, considerably lower than its long-term average which is approximately 15. This is also less than half the S&P 500, which has a price to earnings ratio of about 25.
Low valuations do not necessarily mean that prices will rise in the future. However, if inflation continues to fall and interest rates are lowered as is expected, the FTSE 100 has the potential to perform well in 2024.
Outlook of Top FTSE 100 Companies
As with any market capitalisation weighted index, the overall performance of the index can be greatly influenced by its top constituents. The top five constituents of the FTSE 100, at the time of writing, are listed below.
Source: FTSE Russell – Data as at 31 January 2024
Between them, these five companies currently account for more than 30% of the entire index. Consequently, the performance of these stocks then, can have a lot to say about the wider FTSE 100 forecast. Let’s take a look what analysts expect for these companies in 2024. At the time of writing, Shell is the company with the largest weighting in the FTSE 100, accounting for almost 8.5% of the entire index. Shell is the fifth largest oil and gas company in the world by market capitalisation. After crashing at the start of the pandemic in 2020, its share price performed strongly over the subsequent three years. As is the case with oil and gas majors, what happens with Shell’s share price in the future is largely dependent on energy prices. The infographic below summarises what analysts have forecasted for the stock over the next 12 months. AstraZeneca is one of the largest pharmaceutical and biotechnology companies in the world, accounting for around 8.1% of the FTSE 100 at the time of writing. AstraZeneca gained international prominence during the pandemic due to its role in developing the Oxford-AstraZeneca Covid-19 vaccine which was used around the world. However, the company is more than the vaccine which bears its name. It also produces a host of other products, including a number of cancer drugs. Whilst revenue from its Covid treatments have obviously been falling, revenue from other products have managed to pick up the slack. The infographic below summarises what analysts have forecasted for the stock over the next 12 months. HSBC is the largest bank in Europe and currently accounts for 6.3% of the FTSE 100 index. Despite being listed in the UK, the bank has a large presence in Asia, where it derives around half of its total revenue, and it is actively prioritising growth in these markets. The infographic below summarises what analysts have forecasted for the stock over the next 12 months. Unilever is a consumer goods company, which owns a number of popular brands, including Dove, Hellmann’s and Magnum. At the time of writing, Unilever accounts for 5% of the FTSE 100. Unilever has been accused of underperforming in recent years, with its share price underperforming the wider FTSE 100 in recent times. However, with a new CEO, the company is in the middle of a transformation, shifting focus to its most popular brands and trimming underperformers from its portfolio. The infographic below summarises what analysts have forecasted for the stock over the next 12 months. BP is another oil and gas major although, with a market cap less than half of Shell’s, it currently accounts for 4% of the FTSE 100. Given the similarity of their businesses, BP’s trajectory over the last few years has been very similar to that of Shell and, like Shell, its future performance depends largely on energy prices. The infographic below summarises what analysts have forecasted for the stock over the next 12 months.Shell
AstraZeneca
HSBC
Unilever
BP
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