Picture supply: Getty Photographs
For international traders, this has been an awesome 12 months. Most main inventory markets have surged, together with these within the US, Japan and Europe. Alas, the laggard has been the UK’s FTSE 100, with solely a barely optimistic return.
Worldwide progress
The US is the biggest inventory market by far, accounting for as much as two-thirds of world market worth. The S&P 500 index has had an excellent 12 months, surging by 24.6%. Even higher, the tech-heavy Nasdaq Composite has soared by 44.1% over 12 months.
Nearer to house, the main STOXX Europe 600 jumped by 12.8%, whereas Japan’s TOPIX index surged 25.1%. In the meantime, the FTSE 100 closed 2023 simply 3% increased, excluding dividends.
What am I anxious about?
My greatest fear is that the place the US inventory market goes, others observe. And if America catches a chilly in 2024, then different international locations may begin sneezing, regardless of the well being of their very own economies.
Particularly, if the US Federal Reserve doesn’t lower rates of interest as rapidly as forecast, then US shares could possibly be on the again foot. Additionally, if the American financial system does enter a recession, then falling firm earnings may go away shares trying overpriced.
One other fear is volatility, when monetary markets swing violently. US inventory volatility was very low in 2023, however spiked sharply in March and October. I don’t see 2024 as being as calm as this 12 months turned out to be.
I’m additionally involved by the dominance of the ‘Magnificent Seven’ mega-cap US tech shares. These had an excellent 2023, driving the US market near 2021’s all-time excessive. If these giants stumble subsequent 12 months, then it may clobber traders’ portfolios (together with my very own).
Alternatively
I’ve referred to as the inventory market’s main turning factors for 4 years operating. However what if I’m unsuitable to be cautious about 2024?
For instance, if US earnings progress bounces again from this 12 months’s weak point, then this might underpin increased valuations. Likewise, pre-election tax cuts within the US and UK would possibly enhance companies, as would stronger international financial progress.
One other raise to inventory markets would possibly come from the return of world mergers and acquisitions (M&A) exercise, which neared 20-year lows this 12 months. Certainly, I anticipate to see a number of approaches for FTSE 350 companies subsequent 12 months.
UK shares look a discount purchase
This has been one of the best 12 months for international inventory markets since 2019 as shares collapsed within the early Covid-19 disaster. As each inventory markets and late-night events have taught me, euphoria is commonly adopted by a nasty comedown.
Then once more, as a British investor, it’s disagreeable to see my house market falling behind worldwide rivals. But the excellent news is UK shares have hardly ever appeared cheaper.
As we speak, the FTSE 100 trades on a lowly a number of of 11.3 occasions earnings, delivering an earnings yield of 8.8%. Additionally, it affords a dividend yield of 4% a 12 months, among the many highest money yields of main markets. That appears like discount territory to me.
In contrast, US shares look virtually priced for perfection to me. The S&P 500 trades on a premium score of 21.8 occasions earnings, producing a modest earnings yield of 4.6%. Additionally, its dividend yield is below 1.5% a 12 months, though prime US shares often supply low money yields.
Therefore, I see the Footsie as a large discount purchase for 2024!
