In January last year, I made two stock market predictions, including one about the FTSE 100. Looking back, I think it’s fair to say the accuracy of these has been mixed.
The first was that Tesla stock would drop by at least 40%. I know, I know. Tesla defies logic and can be kept elevated by visionary CEO Elon Musk and his bold robotaxi and humanoid bets.
I just thought reality might set in this year, due to “weak consumer spending, the potential elimination of EV subsidies, and rising competition from cheaper hybrid vehicles“.
Given these challenges, I thought a forward price-to-earnings (P/E) ratio of 117 looked unsustainable. But the stock is up 19% year to date, with the forward P/E multiple now sitting at 213.
To be fair, I did say that I was “inviting a load of egg on my face” making price predictions about an unpredictable stock like Tesla.
My second prediction was that the FTSE 100 would rise for the fifth straight year in 2025. This would have been the first time the index had done so since the Financial Crisis.
Barring some earth-shattering market crash between now and next week, the Footsie will end the year well up. It has jumped 21%, with dividends pushing the actual return even higher. I didn’t envisage such exceptional returns.
2026
To avoid another 1-1 stalemate, here are my three FTSE 100 predictions for 2026:
- The FTSE 100 makes it a sixth year of positive gains. Not since the 1980s has it done that. Lower interest rates, a relatively stable UK political backdrop (at least compared to previous years), and more certainty around global tariffs make me think this is likely.
- With some sort of Ukraine-Russia peace settlement appearing more likely, defence stocks like Babcock International will have a soft year.
- Diageo (LSE:DGE) will finally post a positive return, its first since 2021.
Diageo
What makes me think this about it? Well, the stock has crashed 41% in just two years, leaving it on a rock-bottom forward P/E ratio of 13. This tells us that sentiment is currently incredibly weak for the stock.
But good news could come in the shape of interest rate cuts in the New Year, both in the UK and in Diageo’s key US market. Over time, it should put more money in people’s pockets, potentially helping premium spirits volumes pick up.
Crucially, it has Sir Dave Lewis starting as CEO in January. As a consumer goods veteran who turned Tesco around, I expect him to provide a clear and credible turnaround strategy at some point in 2026.
After all, Diageo still has a few world-class brands that are growing globally, notably Guinness and Don Julio. This is far from a broken company.
Now, I should say that I don’t expect the stock to skyrocket or do anything mad. Any turnaround will likely be gradual and take time. There could even be more weak sales reported in 2026.
But the bar for positive surprises is very low, and I think next year might bring one or two. So investors searching for a FTSE 100 turnaround candidate might want to consider Diageo while it’s still down in the dumps.
