Home » Investing Articles » Will the UK stock market recover in 2024?
With inflation falling and interest rates potentially getting cut, the UK stock market might be set for an explosive recovery in the second half of 2024.
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Zaven Boyrazian, MSc
Zaven is an equity investment analyst. Specialising in corporate valuation, he employs a modern take on the principles set out by Benjamin Graham to identify hidden value in companies that are making the world a better place. Zaven has previously worked in the aerospace and video game industries, holding a Bachelor's degree in Aerospace Engineering, a Master's degree in Investment Management, and has passed the Level 1 CFA exam.
Compared to a few years ago, 2024 has been a far more enjoyable year for investors. Over the last couple of months, the total shareholder returns of the FTSE 100 and FTSE 250 are firmly moving in the right direction. And zooming out even further from late 2023 reveals double-digit returns for both indexes.
Despite this upward trajectory, many UK stocks continue to trade firmly below 2021 levels. But that may soon change. The improved economic outlook is leading to increasingly bullish analyst forecasts, especially in the second half of 2024.
The case for a market rebound
With inflation now sitting at 4%, the Bank of England is looking increasingly likely to announce interest rate cuts as we move into the second half of the year. And it seems the Federal Reserve in the US is likely to do the same.
For businesses, that’s terrific news. Apart from lowering the cost of debt here and abroad, such a move would ease pressure on household budgets, re-sparking both economic and share price growth.
Considering the UK has been in a technical recession, seeing GDP move back in the right direction will obviously be an encouraging sight. However, looking at the history of the stock market, a strange pattern emerges — when a recession starts, the stock market often goes up.
It’s important to remember that investors, even short-term ones, are forward-thinking. As such, expectations of negative impact from a recession are usually baked into stock valuations before they occur. Subsequently, when one does materialise, and uncertainty about its severity is eliminated, valuations get adjusted upwards as the outlook improves.
Does this mean the second half of 2024 is guaranteed to deliver spectacular returns? Not necessarily.
Investors still need to manage risk
There are a growing number of early indicators that a recovery is looming. However, there’s also no shortage of hurdles that have yet to be overcome. In the UK specifically, the political landscape is proving quite tumultuous.
Without getting political, the current government appears to be losing support with a general election just around the corner. Most polls now indicate the Labour Party is on track to take power which could introduce a significant shift in Britain’s fiscal policy.
In the long run, these changes aren’t all that impactful for businesses with the talent and resources to adapt. But sudden change can cause disruptions. And one FTSE 100 firm that could be exposed to such a threat is Tesco (LSE:TSCO).
The country’s leading grocery retailer has been on a bit of a roll lately, with double-digit growth emerging among some of its product lines. As such, management’s grasp on the UK market has increased once again despite facing higher competitive pressures from discount retailers like Aldi and Lidl.
However, Labour’s plans to raise the living wage could put further pressure on the group’s already tight profit margins as its employee salary costs jump. After all, it does employ more than 300,000 people.
The bottom line
There are too many unknown factors to accurately predict when the stock market will make a complete recovery. But even with the potential disruption of a political shift, this is ultimately a short-term problem. In the meantime, plenty of top-notch UK stocks are trading at a significant discount. Therefore, regardless of what happens throughout the rest of 2024, I’m still snapping up long-term bargains for my portfolio.
The Big Money bulls forecast that the Dow Jones industrials will end 2024 at about 41,231, 9% higher than current levels. Market optimists had a mean forecast of 5461 for the S&P 500 index and 17,143 for the Nasdaq —up 9% and 10%, respectively, from where the indexes were trading on May 1.
Conclusion. Under the original buffett indicator, the stock market of UK is expected to return 8.7% a year for the coming years. This is from the contribution of economic growth in local current prices: 3.69%, Dividend Yield: 3.96% and valuation reverse to the mean 1.03%.
The 15 analysts offering 12 month price targets for London Stock Exchange Group Plc have a median target of 10,700.00, with a high estimate of 12,500.00 and a low estimate of 8,600.00. The median estimate represents a 19.77% increase from the last price of 8,934.00.
You can invest in inflation-beating assets to protect your money. On average, the FTSE 100 has outperformed inflation. Over the last 119 years, UK stocks have made annualised returns of +4.9% over and above inflation.
As we enter 2024, 59% of all analysts' recommendations are buys and just 8% are sells for constituents of the FTSE 100, the highest and lowest scores over the past ten years, respectively.
Economic growth actually accelerated above its 10-year average in 2023. That resilience, coupled with a fascination about artificial intelligence (AI), changed investors' collective mood. The S&P 500 soared throughout the year and finally reached a new high in January 2024, making the new bull market official.
Consequently, we anticipate some relaxation of monetary policy in 2024 and 2025, which will feed through to the real economy in 2026 and 2027 by fostering an investment rebound. We forecast GDP to expand by 0.3% in 2024, before rising to 1.4% in 2025 and 1.7% annually in 2026 and 2027 (see the table at the end).
LONDON, March 13 (Reuters) - Britain's economy returned to growth in January after entering a shallow recession in the second half of 2023, offering some relief to Prime Minister Rishi Sunak ahead of an election expected this year, official data showed.
The problem is being exacerbated by the sheer number of British companies that have been sold to foreign rivals and private equity but also by the dearth of new companies joining the public market. The number of UK-listed companies has fallen by 40pc since 2008.
Minor support can be seen at 8080, Friday's low ahead of 8000, the psychological level. A move below here would negate the near-term uptrend and open the door to 7940. Meanwhile, buyers will loo to rise above 8194 to extend gains towards 8300.
But it has remained the largest stock exchange in the world by market capitalisation ever since the end of World War I, when it overtook the London Stock Exchange. In 2012, the NYSE was taken over by an American futures exchange group, Intercontinental Exchange.
The average share price target for London Stock Exchange is 10,114.44p. This is based on 10 Wall Streets Analysts 12-month price targets, issued in the past 3 months. London Stock Exchange's analyst rating consensus is a Moderate Buy. This is based on the ratings of 10 Wall Streets Analysts.
Most investors would view an average annual rate of return of 10% or more as a good ROI for long-term investments in the stock market. However, keep in mind that this is an average.
However, as a whole, the index hasn't been a brilliant investment in recent decades. Looking at the performance of the iShares Core FTSE 100 UCITS ETF, for the 10-year period to the end of March, it only returned 75%.
Yardeni Research president Ed Yardeni has a 5,400 target for the end of 2024 but sees the benchmark hitting 6,000 in 2025 and 6,500 in 2026. To Yardeni, continued outperformance from the US economy, and an increase in productivity, will drive the upside in stocks.
Target price started in 2024 at $142.42. Today, Target traded at $158.04, so the price increased by 11% from the beginning of the year. The forecasted Target price at the end of 2024 is $206 - and the year to year change +45%. The rise from today to year-end: +30%.
This heightened optimism is on par with the positive outlook in December 2021, when investors anticipated a 6% stock market return for 2022. Investor expectations for stock returns over the long run (defined as the next 10 years) rose slightly to 7.2%.
Barclays analysts maintained an overweight rating of Meta stock and lowered their price target to $520 from $550 in an investor note Wednesday. They affirmed their faith in the “name long term” despite what they expect will be “a bumpy ride for the rest of 2024 as revenue growth rates decelerate a bunch from here.”
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