What I learnt about the FTSE 100 in 2023

After outperforming global markets in 2022, the FTSE 100 has had a weak 2023. But I can see several reasons for optimism in the year ahead!

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It’s been a weird old year for the FTSE 100, London’s blue-chip index. So much so, in fact, that I struggle to understand why it’s languishing at current levels.

UK shares outperformed in 2022

As global stocks and bonds collapsed in 2022, the Footsie was a rare winner. While share prices collapsed elsewhere, it gained 0.9% last year. After displaying such relative strength, I expected the index to build on this result.

Alas, this has failed to happen. With just seven weeks of this year left, here are seven things I learnt about the Footsie in 2023.

1. It can hit new peaks

The UK stock market got off to a great start in the first two months of the year. By 16 February, the index hit a record intra-day high of 8,047.06 points, before slipping back to close at 8,012.53. Unfortunately, it’s been nowhere near these levels ever since.

2. London can see short-term extremes

After peaking in mid-February, UK share prices went into reverse. In early July and late August — during the usual summer lull — the index dropped close to the 7,200 mark before bouncing back from these lows.

3. The index lost ground in 2023

On Friday, 10 November, the Footsie closed at 7,360.55 points, down 0.8% for the week. This leaves it down 3.7% over one month and 5.1% over six months.

What’s more, despite being up 0.6% over the past 12 months, the index is actually down 1.2% since 30 December. Hence, this is shaping up to be another disappointing year for UK stocks.

4. The US beats the UK again

Since the global financial crisis of 2007-09, the FTSE 100 has lagged far behind the US S&P 500. Over the past year, the main US index is ahead by 10.6% — almost 10 percentage points ahead of the Footsie.

Over five years, the difference is even larger, with the US index racking up a 61.4% gain, versus just 4.9% for its UK rival. However, the above figures exclude cash dividends, which are generous from Footsie firms.

5. The Footsie’s still great for dividends

Right now, the UK index offers a healthy dividend yield of over 4% a year. This cash yield is considerably higher than those on offer from other major stock markets.

For instance, the yield from the S&P 500 is a mere 1.6% a year. Then again, the US index’s huge long-term outperformance versus its UK counterpart has more than made up for this yield differential.

6. Lots of pundits hate the London market

Last year, financial forecasters were praising UK shares as a safe port in 2022’s global storm. How soon memories are forgotten and sentiments change. Nowadays, pundits claim the London market is a ‘dead zone’, faces ‘doomsday’, is ‘washed up’ and a ‘graveyard for investors’. I’m not so sure.

7. The FTSE 100 looks crazily cheap

Currently, the index trades on a lowly multiple of 10.9 times earnings, producing an earnings yield of 9.2%. This means that its dividend yield of 4%+ a year is covered a healthy 2.3 times by earnings.

This puts London among the cheapest stock markets globally, making me rather bullish for the FTSE 100 for 2024!

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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.

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