With just a few days to go before we reach 2024, it’s worth thinking about the potential reasons why next year could be a strong one for the FTSE 100 and the stock market in general. This isn’t just to have an optimistic viewpoint. Rather, there are many reasons that could support a rally in the market next year.
Lower interest rates
The big one would be if we see interest rates fall. One way this would help stocks is due to the lower opportunity from investing. When interest rates are above 5%, some might say: why not just stick with a Cash ISA?
Yet if rates drop (say, to 3%), then stocks with generous dividend yields or growth options with high potential look a lot more appealing.
Lower borrowing costs
This ties in with having interest rates fall. From a corporate standpoint, lower rates would ease pressure on issuing new debt.
The ease in borrowing would also benefit retailers and other firms that face the public. With consumers also benefitting from lower borrowing costs on loans, discretionary spending could increase.
A resurgent property sector
The FTSE 100 is home to some of the largest UK homebuilders. If interest rates fall (or at least don’t rise anymore) then I’d expect this sector to outperform.
This is because mortgage rates should track lower, allowing home ownership to become more affordable, especially for first-time buyers. For homebuilders that have forward looking order books, higher demand will provide more certainty of revenue for the medium term. This should make the stocks appealing for longer-term investors.
A rally in oil and gas
The latest meeting of oil governing body OPEC saw another cut in output from the committee. When you add this to the mix of continued geopolitical uncertainty with the Middle East, Russia and Ukraine, I think the oil price likely moves higher in 2024.
Some of the largest weighted stocks in the FTSE 100 are commodity companies, such as Shell, BP and Glencore. So if oil does jump then these stocks should also follow suit.
Avoiding a global recession
The US economy grew by 5.2% in Q3, beating expectations so it now looks unlikely it will go into a recession next year. As for the UK, the 0.6% Q3 figure wasn’t amazing, but it certainly wasn’t negative.
If these numbers continue to stay above 0%, then I think the stock market could rally as investor sentiment will improve. If concern about negative growth eases, it should act to spur the market higher.
Pro-business politics
With the UK general election next year, we might think that things will be anything but stable.
We’ll have to wait and see closer to the time, but in the past we’ve seen the stock market jump if the most pro-business/pro-growth party gets into power. This would bode well for businesses, as red tape could be cut along with other measures.
Of course, I can’t guarantee that the above market-positive events will happen. The market might fall if the inverse occurs, such as a global recession or higher interest rates. Yet on balance, I feel my reasoning is broadly sound.
