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It has been a incredible 12 months general for the UK inventory market. The FTSE 100 index is up 17% thus far in 2025, with simply a few weeks left to go. Once I have a look at the elemental causes for the rally, there’s a compelling argument to be made as to why 2026 might provide extra of the identical, with some particular shares that might even outperform the index.
Trying on the intense facet
Even after features in 2025, the FTSE 100 stays low-cost relative to world friends. A superb instance of that is the price-to-earnings ratio for the index versus the S&P 500. At 18.2, the FTSE 100 is considerably cheaper than the 30.83 determine for the US inventory market. Due to this fact, it might proceed to rally within the coming 12 months as traders see it as undervalued.
One other issue is additional rate of interest cuts from the Financial institution of England’s committee. The workforce is extensively anticipated to cut back the bottom charge by 0.25% tomorrow (18 December). Subsequent 12 months, analysts are pencilling in no less than two extra charge reductions. This could assist the FTSE 100 rally. This implies companies can borrow cash at decrease charges, serving to to gasoline progress. It additionally reduces the inducement for folks to maintain cash in financial savings accounts. Buyers then probably search for locations to hunt larger returns, such because the inventory market.
Lastly, even when the worldwide financial system underperforms or folks get spooked by US midterm elections, commerce tensions or different elements, the FTSE 100 might nonetheless do properly. It’s residence to many defensive shares from sectors like utilities, telecoms and shopper staples. Buyers have a tendency to purchase these shares once they get frightened.
A working example
One instance of a inventory that might be thought of is SSE (LSE:SSE). The inventory is up 28% over the previous 12 months, serving to to information the index larger. But it can be seen as a defensive inventory.
It makes cash by way of transmission of electrical energy to finish customers, together with a rising renewables arm with components like offshore wind farms. It has achieved properly prior to now 12 months as a result of in a unstable macro surroundings, traders have regarded in the direction of firms with predictable returns. SSE has ticked this field attributable to having long-dated earnings visibility.
Trying ahead, it’s engaged on a multi-year capex plan targeted on networks and renewables. In idea, this could in the end translate to larger earnings additional down the road, which is why traders prefer it. Additional, even when subsequent 12 months brings volatility, SSE ought to see pretty fixed demand, because the utilities it gives are important to many. Due to this fact, it might do properly (and assist the FTSE 100 as an entire) even when 2026 presents a bumpy highway.
However there are dangers because it’s on the mercy of the regulator when it comes to worth caps or different restrictions. Because of this, this might hamper it sooner or later, relying on what adjustments are made.
Even with these considerations, I feel it’s a inventory for traders to think about as a part of a play for additional features within the UK inventory market subsequent 12 months.
