The FTSE 100 index of shares has delivered spectacular returns in 2025. Up 19% year to date, it seems a matter of time before the index prints new peaks above 10,000 points.
A similar percentage rise to that we’ve seen (so far) this year would push the Footsie to 11,732 points.
It may struggle to repeat its recent performance as significant economic challenges remain. Yet I’m confident that the index will continue to fly next year. Here are just three possible reasons why.
Oil price rebound
The outlook for oil prices is pretty gloomy as supply levels mount. Brent crude has tumbled below $60 per barrel recently, a worrying omen heading into 2026.
This is a big deal for the FTSE 100 given its high weighting of oil stocks. Collectively, Shell and BP make up 9% of the index’s total market capitalisation.
But could oil prices spring a surprise? It’s possible, should the US continue to blockade Venezuelan oil tankers or launch military action in the country. There’s also the threat of stricter energy sanctions on Russia as the war in Ukraine rumbles on.
Recent strength in Chinese oil imports are another positive sign for crude values.
Buoyant banks
UK banking stocks have been some of the index’s star performers this year. This is in part thanks to falling interest rates which — although bad for banks’ net interest margins (NIMs) — can provide a net positive by stimulating economic activity, and with it demand for financial services.
With inflation falling more sharply than expected, a raft of bank-boosting further rate cuts are likely next year. Given that the likes of Lloyds and HSBC (LSE:HSBA) comprise 15% of the FTSE 100’s entire weighting, this could be a big deal.
HSBC is one of my star picks for next year, which is why I hold it in my own portfolio. City analysts are certainly optimistic for the London stock market’s biggest bank as emerging market conditions improve. Its decision to raise net interest income (NII) guidance “to $43bn or better” for 2025 in October certainly bodes well.
Broker consensus is that HSBC’s share price will rise 14% over the next 12 months. With a price-to-earnings (P/E) ratio of 10.3 times, I think there’s plenty of room for gains, despite the threat of fresh US-Chinese trade tensions.
Bargain hunt
HSBC isn’t the only bargain share on the FTSE 100 today, despite the index’s double-digit gains. As we’ve seen in 2025, this could prompt more sustained interest from value investors.
The Footsie trades on a P/E ratio of 13.7 times for next year. That’s still substantially below the 10-year average of roughly 18 times. Analysts at Fidelity note that “UK equities still trade at a meaningful discount to global peers“, which could open the door for further substantial gains.
3i Group, JD Sports Fashion, and GSK are just three top bargains I’m considering for my own portfolio. Each trades below the bargain benchmark of 10 times.
