Could the FTSE 100 book a 17% return by the end of the year? The index pulled off something similar last year. And the changing tastes of investors worldwide have seen the Footsie – with its old-industry stocks, low valuations and big free cash flows – look like one of the most exciting places to park a bit of spare cash. Maybe it’s due for a second banner year in a row and to soar past the 12,000 mark.
While nobody can predict the future – least of all artificial intelligences that are fond of a spot of hallucinating from time to time – for a bit of fun I asked ChatGPT what it ‘thought’ on the matter. I asked it: “Will the FTSE 100 hit 12,000 before 2027?”
The answer
The most interesting part of its analysis was the following probability estimate:
- 12,000 before 2027: possible but unlikely (~20%–35%)
- 12,000 by late 2027: fairly plausible (~50%–60%)
The reasoning for the numbers came from synthesis of a number of major forecasts. Although it should be pointed out that some of these are out of date! For example, analysts at UBS predicted a base case of 10,000 by the end of 2026 and a bull case of 10,800. Well, the FTSE 100 is higher than the base case already and briefly surpassed the bull case a few weeks ago too.
To add onto that, here a few of the important factors to keep an eye on:
- Weak pound: ~75%–80% of FTSE 100 revenues come from overseas companies, so a weaker £ boosts earnings.
- Commodity strength: oil, mining, and energy companies have huge weightings in the index.
- Lower interest rates: if the Bank of England cuts rates faster than expected, equity valuations could expand.
- Continued strength in big constituents: companies like Shell (LSE: SHEL), BP, and Rolls‑Royce Holdings have had large impacts on the index recently.
A buy?
While the Iran conflict (strangely missing from ChatGPT’s analysis) has put the brakes on the FTSE 100 as a whole, it has pushed up a few select companies. Oil major Shell is one that has surged with the price of oil topping $100 a barrel – it was less than $60 two months ago.
Could Shell be a good buy today? Looking at recent performance you would think not. The share price is only up 30% or so since 2014. That’s a miserly return even compared to the benchmark of a stuttering FTSE 100. The dividend is nothing to write home about either. A 3.2% yield is less than what’s available in some Cash ISAs at the moment.
That said, the current tragedy playing out in the Middle East could spark a turnaround. The price of oil increasing helps, for one. But it might serve to underscore just how important oil still is to the global economy. After all, Warren Buffett’s pal, the late Charlie Munger, said we would need oil for two hundred more years or more.
And as ChatGPT said, the size of Shell – at £184bn it dwarfs many of the £4bn–£6bn market cap companies on the index – means it has a hugely disproportionate weighting. If the FTSE 100 makes it to 12,000 before 2027 then Shell will likely play some part.
