2024 has been a terrific year for the stock market so far. Here in the UK, the FTSE 100 has delivered a 10.3% total return over the last nine months, and across the pond, the S&P 500 is up 22.2%! Both indexes have reached new all-time highs this year. But could this be just the tip of the iceberg?
Both the Bank of England and US Federal Reserve central banks have now begun their interest rate-cutting programmes. Inflation has largely cooled off, and so now it’s time to spark growth in these leading economies.
Rising optimism
The change in monetary policy is fantastic news for businesses. Regardless of whether customers are consumers or companies, a lot of spending has been cut until a more favourable economic environment emerges.
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Assuming the current trends continue, that could mean a significant boost in spending could be right around the corner in 2025 as budgets are reset to capitalise on lower interest rates. And with that likely comes higher stock prices as more businesses start to announce the return of earnings growth.
Looking specifically at the UK, the Economy Forecast Agency (EFA) currently has predicted the FTSE 100 to potentially reach as high as 10,920 points by the end of 2025. Compared to current levels, that’s an estimated surge of 32% within the next 15 months. And that’s before even taking dividends into account.
Needless to say, that’s quite an exciting prospect, and it’s three times the size of the stock market rally we’ve enjoyed so far!
Capitalising on momentum
Forecasts always need to be taken with a pinch of salt though. After all, they’re dependent on a lot of assumptions that seldom come true. And even the EFA has admitted its projections could be off with its more pessimistic outlook projecting the FTSE 100 to ‘only’ reach 9,492 points.
That’s still a 12% potential rise versus today, but it highlights the wide range of expected outcomes. Nevertheless, analyst projections are becoming increasingly positive for 2025. So, what are the best stocks to buy now to capitalise on this looming momentum?
Looking at my own portfolio, Howden Joinery (LSE:HWDN) is looking increasingly promising. Known primarily as a fitted kitchen designer and supplier, Howden has been busy expanding its business over the last year. The group has improved customisation options and even begun venturing into the realm of fitted bedrooms. However, none of these developments seems to have been reflected in its financials yet.
Looking at its latest interim results, growth across the UK and abroad has slowed to a crawl. Given the high cost of home renovation, it seems that many customers are simply waiting for lower interest rates before committing to their projects.
Now that interest rate cuts have started, Howden’s return to double-digit growth could be right around the corner. Of course, it’s not the only firm in this sector seeking to capitalise on this upcoming tailwind. Competition from other kitchen suppliers could impede its 2025 performance, especially if they’re able to offer more competitive prices.
Nevertheless, Howden’s long track record, paired with the market opportunity in 2025, gives me sufficient confidence to invest despite the risks.
