So far, 2025 has been a banner year for the FTSE 100 index of leading British shares.
The index has repeatedly hit new all-time highs. Yet despite that, it still looks comparatively cheap when set side by side with its US equivalent.
However, the US and UK are different markets. While New York’s stock exchanges play host to the world’s biggest tech companies, London’s blue-chip index contains a lot of long-established companies in mature industries that offer limited growth prospects.
Not only that, but the UK economy is looking increasingly sluggish to me. Tax and National Insurance rises have been cited by dozens of listed companies this year as a reason for rising costs eating into profit.
JD Sports’ interim results this week warned of “continued pressure on consumer finances“, although previously the retailer had shrugged off weakening consumer sentiment. Other companies have already been feeling this strain for some time.
So, could the FTSE 100 be in for a fall – and how can I position my portfolio to prepare?
Headed for a fall?
in short, the FTSE 100 does not look badly overpriced to me. However, given the weak prospects for the UK economy, I would not be surprised to see it fall at some point.
The issue that is much less clearer to me is when.
Market timing is notoriously difficult, if not downright impossible. Even when a market looks overvalued, it can potentially stay that way for years or even decades.
Given that I do not think the FTSE 100 looks obviously overvalued right now, it could possibly keep rising for a long time yet. Or not.
Here’s my approach
What to do, then, in such a situation?
My strategy is based not on investing in the index, but on choosing individual shares to own.
A weakening economy can be bad for the FTSE 100 overall, but it may offer opportunities for some companies within it – and outside it.
For example, with consumers tightening their belts, I think the environment could become more promising for FTSE 250 discount retailer B&M (LSE: BME). Yet the B&M share price has actually tumbled 38% over the past year.
Lately, the new chief executive has made multiple substantial share purchases using his own money. I also added some more B&M shares to my existing holding this week.
That fall partly reflects City unease about the company’s outlook. It has been struggling to maintain let alone grow sales of fast-moving consumer goods. That could suggest that its value proposition for shoppers has become less attractive.
But I reckon that is fixable – and the chief executive seems to, as well. With a large store estate, strong brand, and sizable customer base, I think B&M has a lot of strengths to build on.
It remains profitable and the dividend yield is 5.7%. So, hopefully, I will earn some handy passive income while waiting for the share price to recover.
Whether that happens remains to be seen – but I am confident that B&M is able to improve its business performance. Hopefully, the share price will follow.
