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As the new year approaches, I’d like to try and predict what big stock market news may be ahead. Here are my thoughts on that FTSE 250 The share index may perform in the next 12 months.
A move over 22,000 points?
2024 has been a good year so far for the FTSE 250. Up 4% year to date, this is roughly the same rate of growth it enjoyed last year.
If this level continues, the index will rise from 20,400 points today through the barrier of 21,000 points. To be exact, it will end the year at about 21,216 points.
I think the index may be more effective than it was a few years ago, though. I tip it to go over 22,000 points.
Base rate boost
There are two reasons why. First, I think there is a chance that the Bank of England (BoE) may cut interest rates more than the market is pricing in.
Yesterday, December 18, the central bank’s nine-member rate planning committee voted to lower interest rates. This was higher than expected, and although the default rate remains at 4.5%, the balance may tip towards aggressive action if the British economy remains weak.
UK interest rates are important to the FTSE 250, as more than 40% of the index’s profits come from these areas.
The BoE is walking a tightrope given inflation uncertainty. But with rising unemployment and slowing wage growth cooling employment, there may be some wiggle room for ratemakers to play with in 2025.
Goldman Sachs expects the base rate to move next year to 3.25%. That is much lower than the 4% expected by the broader market. If this happens, London stock prices can soar.
Negotiation-hunting continues
I also think the FTSE 250 will rise, as UK shares continue to look historically cheap.
Since December 2019, the index has decreased by almost 1,270 points, or 5.8%. To put that in perspective, the FTSE 100up 6.9% again S&P 500‘s exploded by 83.1% in the same period.
As a result, the index looks very cheap right now. Its forward price-to-earnings (P/E) ratio is well below the long-term average of 14 to 15 times, 10.7 times.
This may continue to attract bargain hunters at home and abroad.
Here’s what I do
While I’m quietly confident that the FTSE 250 will rise in 2025, I’m not piling into something like an index tracker fund. This is because there are individual stocks that I would like to buy to target better returns next year.
Babcock International (LSE:BAB) is a defensive stock on my radar for the coming year. It is up 19% in value so far in 2024. And I hope it can continue to rise as the use of Western weapons accelerates.
The latest earnings last month showed the excellent progress Babcock is making in this unfavorable global climate. Organic revenue rose 11% between April and September, driven by strength across its global and nuclear divisions. Underlying operating profit increased by 10%.
Despite strong 2024 earnings, Babcock shares still look cheap, trading at a low forward P/E ratio of 11.4 times. This leaves room for further price gains next year, although supply chain issues remain a threat to profits.
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