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Is the FTSE 100 book a 17% return by the end of the year? The index released a similar item last year. And a shift in investor appetite around the world has seen Footsie – with its old industry stocks, low valuations and huge free cash flow – look like one of the most exciting places to park what little cash is left. Maybe it will be a second banner year and go over the 12,000 mark.
Although no one can predict the future – least of all artificial intelligence that likes to lie occasionally – for fun I asked ChatGPT what it ‘thought’ on the matter. I asked it: “Will the FTSE 100 reach 12,000 before 2027?”
The answer
The most interesting part of its analysis was the estimation of the following probabilities:
- 12,000 before 2027: likely but unlikely (~20%–35%)
- 12,000 by late 2027: sound (~50%–60%)
The reason for the prices came from the combination of several major forecasts. Although it should be noted that some of them are outdated! 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.
In addition to that, here are a few important features to look for:
- Weak pound: ~75%–80% of FTSE 100 revenue comes from offshore companies, so a weak £ boosts earnings.
- Commodity strength: oil, mining, and energy companies are heavily weighted in the index.
- Low interest rates: if the Bank of England cuts rates faster than expected, equity rates could rise.
- Continued strength in major sectors: companies such as A shell (LSE: SHEL), BPagain Rolls-Royce Holdings have had a significant impact on the index recently.
Shopping?
While the Iran conflict (surprisingly missing from ChatGPT’s analysis) put the brakes on the FTSE 100 as a whole, it boosted a few select companies. Oil major Shell is one that has risen as oil prices hit $100 a barrel – down from less than $60 two months ago.
Could Shell be a good buy today? Looking at recent performance you wouldn’t think so. The share price is up only 30% since 2014. That’s a poor return even compared to the impressive FTSE 100 benchmark. The profit is nothing to write home about. The 3.2% interest is less than what is currently available in other Cash ISAs.
That said, the current crisis in the Middle East may prompt a change. Rising oil prices are helping, for one thing. But it may underline how important oil still is to the world economy. After all, Warren Buffett’s friend, the late Charlie Munger, said that we will need oil for two hundred years and more.
And as ChatGPT points out, Shell’s size – at £184bn dwarfs most of the £4bn–£6bn market cap companies in the index – means it is very disproportionately weighted. If the FTSE 100 reaches 12,000 before 2027 then Shell will probably play a role.
