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The FTSE 100 broke by way of 8,000 factors in early April. May we see the beginning of a long-awaited bull run?
Effectively, no. A minimum of, it appears, not but.
The Footsie took a short look above 8,000, didn’t like what it noticed, and rapidly ducked down once more. It’s all the way down to 7,850 factors on the time of writing.
So what’s flawed? In spite of everything, forecasts for our prime UK shares look robust. They’ve dipped a bit as estimates have been scaled again. And we’re nonetheless ready for 2023 outcomes to all are available in.
10% earnings development
However analysts predict complete earnings development from FTSE 100 shares in 2023 of near 10%.
In the beginning of the yr, the FTSE 100 was on an general price-to-earnings (P/E) ratio of about 11. The index has gained slightly since then, however after this newest retreat, actually not very a lot in any respect.
The common P/E over the previous decade has been round 16, and that’s near the Footsie’s long-term common.
Assuming it should get again round that mark, and factoring in that potential 10% earnings development, I reckon the FTSE 100 may simply be 30% undervalued proper now.
Dividends
After which let’s add within the forecast dividend yield. In line with AJ Bell‘s Dividend Dashboard, the Metropolis places it at 3.9% for the yr simply ended. And we see 4.2% for 2024, which is traditionally robust.
Traders can get greater than that from a Money ISA proper now, and that’s assured. However as soon as rates of interest fall, that may’t final.
By the tip of the yr, if we get the rate of interest cuts we hope for, Money ISAs, gilts and bonds may all look rather a lot much less engaging. May that be the spur for a significant transfer again into shares and shares?
Low cost inventory?
For instance of how crazily low cost I believe some FTSE 100 shares are proper now, let’s have a look at Lloyds Banking Group (LSE: LLOY). For no different motive, actually, than that I personal some.
The ahead Lloyds dividend stands at 5.4%. And the forecast P/E for 2024 is simply 9. What’s extra, development forecasts for the following few years would drop the P/E as little as six, and push the dividend yield near 7%.
Are UK investor mad to not need to snap up a cut price like that?
Effectively, the short-term threat remains to be there, with rates of interest hurting Lloyds’ mortgage enterprise. And after they fall, we must always see decrease lending margins… it hurts whichever means we have a look at it. I believe Lloyds shares may nicely face additional weak spot.
Sentiment
However by far the largest issue, for me not less than, is UK investor sentiment. Whereas the concern remains to be right here, UK share costs would possibly nicely keep low.
Nonetheless, I actually do suppose we may see a lift in inventory market confidence within the second half of this yr.
And if the FTSE 100 doesn’t finish the yr nicely above 8,000 factors… nicely, we’ll simply be capable to purchase shares low cost for a bit longer.
