At the end of 2024, most banks and brokers put out a year-ahead view for the stock market. Granted, these forecasts need to be taken with a pinch of salt. But when I saw one forecast from analysts at Deutsche Bank, it certainly made me sit up. Here’s what it could mean for the market.
Trending higher from here
I’m referring to the prediction for the FTSE 100 that the team led by Maximilian Uleer put out in Q4 last year. Its 2025 price target for the index is 9,400 points. Given that the market’s currently at 8,226 points, this would mark just over a 14% gain for the year.
Based on the other contributors that submitted a year-end target, the data compiled by Bloomberg shows that the average price forecast is 8,833 points. This represents a 7.4% growth rate.
It’s true there are several reasons why the UK market could do well in 2025. A big factor is if interest rates continue to drop. This would help to boost economic growth and naturally provide a feel-good factor for investors. Another boost could come from government policy reform, with it being the first proper year for the new Labour administration.
Consumer staples in focus
As with any index, the performance is based on how the constituents do. So even if the FTSE 100 does reach lofty heights around 9,400 points, there will be winners and losers along the way.
One company for investors to consider that could lead the charge is Tesco (LSE:TSCO). The well-known UK supermarket has rallied by 24% over the past year. As a firm that sells directly to the consumer, a large part of the success comes when demand’s high and people have money in their pockets to spend.
With inflation coming back under control over the past year, this has helped to ease pressure on grocery products. Yet it has also given people a feeling of better control on finances, helping to boost spending again.
If the FTSE 100’s to push higher, it’ll need to be built on the back of a strong UK economy. If that’s the case, Tesco should do well, given the sensitivity to consumer spending. We’re already seeing some evidence of this, with retail consultancy Kantar estimating a 5% sales growth for Tesco in the 12 weeks to year end.
One risk is if inflation does meaningfully pick up again. This could cause people to once again cut back on spending as prices spiral higher.
Caution around geopolitics
I feel the main risk to the forecasts for the FTSE 100 is geopolitics. There are problems close by in Europe with Germany and France. The new US President’s speaking of wide ranging trade tariffs. The war in Ukraine rages on. All of these have the potential to spill over to the UK in some form, causing investors to potentially panic.
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Jon Smith has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesco Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
