Could the FTSE 100 be set to soar in 2024?

The FTSE 100 keeps threatening to go off on a growth spree. And weak sentiment keeps holding it back. But that must change, mustn’t it?

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The FTSE 100 broke through 8,000 points in early April. Could we see the start of a long-awaited bull run?

Well, no. At least, it seems, not yet.

The Footsie took a brief look above 8,000, didn’t like what it saw, and quickly ducked down again. It’s down to 7,850 points at the time of writing.

So what’s wrong? After all, forecasts for our top UK shares look strong. They have dipped a bit as estimates have been scaled back. And we’re still waiting for 2023 results to all come in.

10% earnings growth

But analysts predict total earnings growth from FTSE 100 stocks in 2023 of close to 10%.

At the start of the year, the FTSE 100 was on an overall price-to-earnings (P/E) ratio of about 11. The index has gained a little since then, but after this latest retreat, really not very much at all.

The average P/E over the past decade has been around 16, and that’s close to the Footsie’s long-term average.

Assuming it will get back around that mark, and factoring in that potential 10% earnings growth, I reckon the FTSE 100 could easily be 30% undervalued right now.

Dividends

And then let’s add in the forecast dividend yield. According to AJ Bell‘s Dividend Dashboard, the City puts it at 3.9% for the year just ended. And we see 4.2% for 2024, which is historically strong.

Investors can get more than that from a Cash ISA right now, and that’s guaranteed. But once interest rates fall, that can’t last.

By the end of the year, if we get the interest rate cuts we hope for, Cash ISAs, gilts and bonds could all look a lot less attractive. Might that be the spur for a major move back into stocks and shares?

Cheap stock?

As an example of how crazily cheap I think some FTSE 100 shares are right now, let’s look at Lloyds Banking Group (LSE: LLOY). For no other reason, really, than that I own some.

The forward Lloyds dividend stands at 5.4%. And the forecast P/E for 2024 is just nine. What’s more, growth forecasts for the next few years would drop the P/E as low as six, and push the dividend yield close to 7%.

Are UK investor mad to not want to snap up a bargain like that?

Well, the short-term risk is still there, with interest rates hurting Lloyds’ mortgage business. And when they fall, we should see lower lending margins… it hurts whichever way we look at it. I think Lloyds shares could well face further weakness.

Sentiment

But by far the biggest factor, for me at least, is UK investor sentiment. While the fear is still here, UK share prices might well stay low.

Still, I really do think we could see a boost in stock market confidence in the second half of this year.

And if the FTSE 100 doesn’t end the year well above 8,000 points… well, we’ll just be able to buy shares cheap for a bit longer.

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.

Alan Oscroft has positions in Lloyds Banking Group Plc. The Motley Fool UK has recommended Aj Bell Plc and Lloyds Banking Group 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.

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