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Over the previous 12 months, the FTSE 100 has achieved very properly. It’s up 15%, and from the place I’m standing, I’d fortunately take a 15% return every year. Nonetheless, issues aren’t that straightforward, and neither is the outlook by way of to the top of the 12 months. With a number of dangers dealing with buyers, it’s laborious to foretell a path. I sought a second opinion from my AI buddy ChatGPT, and that is what it mentioned.
Fairly optimistic
The chatbot gave me a year-end forecast of 11,350 factors. For perspective, the FTSE 100 is buying and selling round 10,700 factors in the intervening time. In order that’s over a 6% return in three months, on prime of the run we’ve already had this 12 months. I prefer to be optimistic, however that appears fairly a shocking reply.
Once I requested for the reasoning, it mentioned the earnings backdrop for FTSE 100 shares stays supportive. Present estimates for the broader UK market level to roughly 11% annual earnings progress over the following few years. Even so, I wrestle to see that translating into such a big index-level acquire within the coming months.
One other issue is that the FTSE is properly positioned for the present macro surroundings. Oil above $100 is painful for the UK financial system, however the FTSE 100 isn’t the UK financial system. BP and Shell profit from greater vitality costs, whereas miners, banks and defence corporations make up one other substantial a part of the index. So though there are dangers, the index could possibly be much less affected than folks would possibly assume.
Tempering the keenness
To be clear, I don’t assume the index is due a steep fall between now and Christmas. However I don’t assume we’ll see it break meaningfully above 11,000 factors. My principal concern is that the Financial institution of England’s rate of interest hikes to stem rising inflation will harm extra shares than they assist. So I consider the FTSE 100 will end the 12 months across the identical degree it’s at now.
This doesn’t imply some shares can’t do properly. For instance, greater rates of interest ought to assist NatWest Group (LSE:NWG). The inventory is already up 33% up to now 12 months, however I feel it may proceed. For my part, one purpose buyers have warmed to the FTSE 100 financial institution is that the prospect of rates of interest staying greater for longer may proceed supporting earnings.
NatWest makes cash from the distinction between what it earns on loans and what it pays depositors. Increased charges can widen this unfold. NatWest’s numbers show the impact properly. Internet curiosity revenue rose 12.6% 12 months on 12 months to £6.9bn within the first half of 2026, whereas its web curiosity margin elevated from 2.28% to 2.48%.
Due to this fact, with greater charges, NatWest may earn extra from its massive deposit base than buyers beforehand anticipated.
However charges aren’t the one purpose I’m constructive. H1 working revenue jumped 20% to £4.3bn. Administration subsequently upgraded its 2026 revenue steering to round £17.9bn and introduced a 12p interim dividend, 26% greater 12 months on 12 months.
There are dangers, although. Increased charges are useful solely up to some extent. If borrowing prices squeeze households and companies too severely, mortgage demand may weaken and mortgage defaults may enhance. But on stability, it’s a inventory I feel buyers may contemplate if they need publicity to this theme.
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Jon Smith has no positions within the shares talked about.
