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I FTSE 100 hitting 10,000 is a psychological milestone rather than a fundamental turning point. However, it says a lot about the aftermarket. After years of sluggish US stock markets, the UK’s blue-chip index has benefited from lower inflation, expected interest rate cuts, and a slow recovery in appetite.
It’s also worth remembering what the FTSE 100 actually stands for.
The index is dominated by global businesses in energy, mining, consumer goods, and finance, with the majority of income earned abroad. A weaker pound over time, combined with stronger asset prices and stronger liquidity, has supported income growth even as the domestic economy struggles.
That’s not the only thing pushing the index higher. Banks have been a major driver of growth over the past two years. Banks now represent the second, ninth, eleventh, fourteenth, and eighteenth largest companies on the list.
For investors, moving to 10,000 doesn’t mean anything particularly noteworthy. Obviously, it suggests that those featured in the list will have seen their wealth grow accordingly.
Is the index still cheap?
A recurring theme in recent years is that the FTSE 100 has looked cheap compared to US stocks. There were a number of reasons for this, many tied to the UK’s weak economic outlook and political uncertainty – although around 70% of the FTSE 100’s revenue is generated overseas. One of the most important, and often overlooked, factors is income.
The US equity market is simply more liquid. American pension funds, ETFs, and retail investors are constantly investing in domestic stocks, which creates a lot of deep demand. In contrast, UK shares faced persistent outflows, as pension schemes de-risked and global funds underweight London in favor of New York.
In short, UK stocks look cheap compared to US peers. Banks are a good example of this. However, there has been a big change in how much the market is willing to pay for British companies. That should be seen as a good thing since the active money market is good for almost everyone. Positive sentiment may lead to more listings.
One to watch
Any stocks investors should watch as we head into 2026?
I believe Melrose Industries (LSE:MRO) remains one of the most attractive and overlooked stocks in the index.
With GKN Aerospace, the group is Tier 1, the only supplier of critical engine and structural components to all the world’s major manufacturers – a position built over decades and very difficult to replicate.
Today, its technology is used in nearly 90% of commercial and military engines, with nearly 70% of its revenue coming from long-term contracts where it is the exclusive supplier. This gives it pricing power.
Despite this, the rating remains modest. Shares trade at about 15.1 times forward earnings, with a price-to-earnings-growth ratio of just 0.8. That’s a clear discount to peers Rolls-Royce, GE Aerospaceagain Safran. The business also benefits from a strong aftermarket, which delivers high margin revenue even during industry downturns.
Total debt of around £1.67bn is a big risk, but with strong cash flow and modest growth targets through 2029, I think investors should consider Melrose Industries.
