The FTSE 100 has climbed 19% in 2025. At the same pace, we really could see 10,000 points before the end of December.
Momentum itself can be a key stock market driver. And right now, I see no sign of this year’s bullishness ending. There’s growing fear of an artificial intelligence (AI) bubble in the US. But so far it’s not holding anyone back. Nvidia has just become the world’s first company to reach a $5trn valuation!
Analysts are also bullish. And I’m seeing some year-end targets as high as 10,400 points, for another 7% increase.
Reasons to be cheerful
Are there rational reasons why these rosy forecasts might come true? I think so. AI dreams might be pushing the S&P 500 to worrying levels, but the FTSE 100 doesn’t look too expensive to me.
It’s maybe a bit on the high side of its long-term level, with recent estimates suggesting a price-to-earnings (P/E) of around 18 to 19. The longer-term average is around 15. But I reckon there are good reasons for UK stocks to command this kind of valuation today. One of them is that the London stock market isn’t tech-heavy.
Driving sector
The financial sector has added a fair push to this year’s momentum. Lloyds Banking Group (LSE: LLOY), for example, has gained over 60% so far this year. And HSBC Holdings — the second biggest stock on the FTSE 100 — is up 35%.
Yet neither of these major banks look overvalued to me. In fact, I think banking and finance stocks in general provide the strongest hints of 10,000 points by Christmas. I’ll stick with Lloyds as an example for the sector.
Some analysts are talking about dividend prospects as a big plus for the FTSE 100. And I think they’re right, though Lloyds is no longer one of the leaders, with a forecast 3.8% yield. HSBC, by the way, offers a predicted 5.6%.
They also point to the defensive nature of London stocks, which I’ve already hinted at. And that seems true enough too.
Earnings growth
But I see earnings growth potential as a key strength for the FTSE 100 in the coming years. Forecasts suggest Lloyds will grow earnings per share by 80% between 2024 and 2027.
That would lower the forward P/E — at 13 for 2025 — to under eight. And that’s almost getting us back into early pandemic valuation territory.
Over the same period, analysts also expect the dividend yield to get up to 5.5%.
Wobbles ahead?
Lloyds is exposed to the British economy more than most banks — it’s the UK’s biggest mortgage lender, for one thing. So I really can see more volatility ahead. And I’m never surprised the way banks can keep pulling off shockers like the car loan mis-selling case.
But Lloyds is definitely a stock that long-term value investors should consider, in my book.
And that 10,000 FTSE 100 target? It doesn’t really mean much in itself. But if we dig into what’s behind it, I think it helps show the long-term attraction of the UK stock market.
