Long written off as a dinosaur of global markets, the FTSE 100 index has suddenly roared back to life, like something out of Jurassic Park.
It’s up 23.5% in six months and 16.4% year to date. And today (6 October), it breached the 9,500 intraday barrier for the very first time.
Is 10,000 now firmly on the cards by the end of 2025? I wouldn’t rule it out given the blue-chip index’s strong momentum.
Counterintuitive
On one level, this surge is somewhat counterintuitive. After all, the UK economy is hardly firing on all cylinders. And while most Footsie firms earn the bulk of their profits overseas, the global economy is also beset by tariff uncertainty and a very murky outlook.
Meanwhile, France’s new prime minister Sebastian Lecornu just quit unexpectedly after less than a month. Fiona Cincotta, senior market analyst at City Index, was quoted by Reuters as saying: “The fact that the French Prime Minister has resigned adds to concerns around political and fiscal stability and more broadly in the UK and Europe.”
Again, you wouldn’t know there were any concerns looking at European indexes. France’s CAC 40 is still up 8% year to date, while Germany’s DAX 40 has surged nearly 23%.
Spain’s IBEX 35 is no laggard, with gains of 34.5% in 2025, before dividends.
What’s going on?
This makes more sense when we look at what investors have been buying. In the UK and Europe (which lack many Big Tech and AI shares), they’ve largely been snapping up banks and defence stocks.
UK banks have made a rip-roaring comeback after nearly two decades in the wilderness following the global financial crisis. Much stronger balance sheets have enabled Footsie lenders to shrug off both Covid and the 2023 banking crisis without raising capital.
With elevated interest rates leading to improved profitability, and rates seemingly staying higher for longer, investors continue to pile in. HSBC (LSE:HSBA), Barclays, and NatWest are up 36%, 44%, and 36% this year, respectively. Meanwhile, Lloyds has surged around 54%!
Sadly, the rise in defence stocks is self-explanatory as the Ukraine war rumbles on. A massive increase in arms spending is set to happen across Europe over the next decade.
In response to this, Babcock International stock has rocketed 158% year to date, while BAE Systems has advanced 77%.
Is there any value left?
From the six names mentioned above, I own shares of BAE and HSBC. But BAE looks a bit highly valued to me, trading at 27.5 this year’s forecast earnings. The dividend yield is now just 1.7%.
In contrast, I reckon HSBC shares still look decent value. They’re trading at 10 times forward earnings, while offering a decent 4.9% yield.
One challenge for HSBC is global trade uncertainty. As an Asia-focused bank, HSBC is more vulnerable to tariffs and trade-related slowdowns in the region. This is an ongoing risk.
However, as things stand, HSBC is navigating all this well. It’s cutting costs, generating more fees from wealthy clients, and recently announced a new $3bn share buyback programme. The dividend is covered twice over by forecast earnings.
Long term, I remain bullish on HSBC’s growth prospects across Asia. If I didn’t already have a decent-sized holding, I would consider buying the stock today, even with it near a record high.
