This month we have seen yet another all-time high for the blue-chip FTSE 100 index of leading British shares. That has happened on multiple occasions this year.
Yet 2025 has been filled with economic uncertainty from a plethora of causes, ranging from geopolitical tensions to uncertainty about international tariff regimes. Meanwhile, the British economy hardly looks like it is at its healthiest ever.
So, why is the FTSE 100 on fire – and how might investors consider reacting?
Lots to like, but lots to be concerned about!
The FTSE 100 contains a welter of different companies.
Some are focused on the UK market, while others do most of their business overseas. Some are in mature industries, while others have stronger growth prospects. Some are pouring off huge amounts of surplus cash, while others are struggling with their profitability.
So I do not see a necessary contradiction between a sluggish-looking economy and record-breaking FTSE 100 performance. Some of the index’s firms have been performing solidly lately.
Meanwhile, the nature of the index and its quarterly membership reviews means that firms with growing market capitalisations are more likely to stay inside it, whereas others with shrinking valuations can drop out of it.
But while the index is going gangbusters, wider economic performance ultimately affects the FTSE 100 over the long run. I still have some concerns on this score, although it may yet set some further new records in coming months.
The growth outlook for the UK economy remains unremarkable. While the FTSE 100 remains cheap relative to its US counterpart, its valuation no longer looks to me like the possible bargain it did a couple of years ago.
Buying individual shares
That is one reason I have no plans to invest in a FTSE 100 tracker fund.
But the main reason is that I prefer to buy individual shares rather than an index tracker.
While the FTSE 100 index has been riding high, not all of the shares in it have been doing so well.
As an example, consider JD Sports (LSE: JD). Its share price is down 32% in just one year. Ouch!
That is not without reason. As a trading update today revealed, like-for-like sales for the first half of the year fell 2.5%. Alarmingly, like-for-like sales performance was worse in the second quarter than the first quarter in Europe and the UK.
That could suggest ongoing weaker demand ahead, even though the company reported a stronger second-quarter trend in Asia Pacific. North American like-for-like sales fell, but by less than in the first quarter.
But like-for-like sales do not tell the full story. Thanks to opening more shops, the company’s total sales continue to grow.
It is strongly profitable and its growing global footprint gives it economies of scale. With its extensive shop opening programme of recent years winding down, JD’s capital expenditure is set to fall, helping profitability.
Although it is continuing to assess the possible impact of US tariffs, for now JD Sports expects this year’s profit before tax and adjusting items to be in line with analysts’ expectations. They currently sit in the range of £852m-£915m.
Against that, JD Sports’ market capitalisation of under £5bn looks low to me. I think it is one FTSE 100 share investors should consider.
