After breaking above 9,500 points in October, the FTSE 100 finally reached 10,000 points for a while Friday (2 January) — almost double its Covid low near 5,000 points.
That’s no small feat. By comparison, after reaching 2,000 points in 1987, it took it almost 10 years to double to 4,000 points. But with so many mitigating factors threatening global markets in recent months, will we see a sustained level of 10,000 points and more this year?
Nobody can say for sure, but I decided to test ChatGPT to see what conclusion it came to.
Analysts consensus
My question was simple: “Will the FTSE 100 break above 10,000 points in 2026, and if so, why?” It could have just said “yes“, given what happened on Friday!
But its answer (ahead of that 10,000 breakthrough) was, unsurprisingly, an aggregation of analysts’ forecasts. Using predictions from the likes of JP Morgan and AJ Bell, it decided the index will reach between 10,500 and 10,700 by year-end. Considering it’s grown at a compound annual growth rate of 3.6% over the past 25 years, that’s not a difficult conclusion to reach (9,930 + 3.6% = 10,288).
But past performance is no indication of future results, so I’m more interested in why, even after breaching 10,000 points, it might not stay there.
Past comparisons
Take, for example, the City of London Investment Trust (LSE: CTY), a fund invested in the top 70-80 British stocks. It’s a popular choice for income investors, having increased its dividend for 59 consecutive years. It has a decent 4.3% yield and is attractively undervalued, with a price-to-earnings (P/E) ratio of 7.6.
This makes it a stock worth considering for both income and value investors.
But its historical price action could tell us something about the FTSE 100 today. From 1996 to 1998, the share price almost doubled from 155p to 297p. Most investors were certain it would break the 300p price point in 1998 — but no such luck. In fact, it took another eight years before it finally hit 300p in October 2006.
The past two years haven’t been as impressive — up only 30% — but market conditions are eerily similar. In 1998, central banks were cutting rates in response to financial shocks following aggressive speculation into a ‘new paradigm’ narrative (the internet). This was driven by a record market concentration in a handful of elite companies, with the top 10 S&P 500 companies representing 20% of its value.
Today, the same is happening, only with AI. Concentration is more extreme, with the top 10 market leaders, including Nvidia, Apple and Alphabet, accounting for 45% of the S&P 500’s worth.
What this means for UK investors
While US companies drive the AI speculation narrative, the UK isn’t immune to its risks. Some of the FTSE 100’s top companies such as Unilever, AstraZeneca and BAT derive 40%-45% of revenues from US operations.
If AI speculation results in another dotcom-like crash, I think the Footsie could struggle to stay above 10,000 points this year. If so, City of London may risk losses due to its heavy weighting towards US-exposed companies.
Fortunately, the FTSE 100 is also rich in defensive stocks including Tesco, National Grid and GSK. Investors looking to reduce volatility in a downturn may want to consider these.
