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The S&P 500 posted one other cracking 12 months in 2024. It grew greater than 20% for the second 12 months in a row, leaving world markets trailing in its wake.
Development-hungry buyers have been handled to yet one more leg of the tech-driven US rally, with AI shares like Nvidia powering the index to new highs. I’m pissed off as a result of I made a decision the chipmaker was most likely overhyped firstly of 2024. It’s up greater than 190% since I made a decision to not purchase it. Ouch.
As a worth investor, it’s not the primary time I’ve regretted failing to leap on a red-hot momentum inventory. With luck, I’ll be taught.
The FTSE 100 is due an enormous restoration
However can the S&P 500 add one other 20% this 12 months? Or will the FTSE 100 lastly stage its long-awaited comeback?
I ought to win both methods. I’ve ample publicity to US fortunes through low-cost trackers Vanguard S&P 500 ETF and the Authorized & Common World Know-how Index. Each have huge stakes in Nvidia and the opposite tech mega-caps.
But I’m not satisfied 2025 will ship one other bumper 12 months for the US. A 20% acquire on prime of final 12 months’s rally would push valuations into much more stretched territory. The S&P 500 already seems to be dear, with the Shiller price-to-earnings (P/E) ratio at a staggering 37.26. Against this, the FTSE 100’s P/E is a modest 15.76.
If earnings progress doesn’t meet expectations, US shares may stoop. And with the Fed unlikely to slash charges aggressively, Wall Road would possibly wrestle to seek out its subsequent catalyst.
The US stays irresistible, pushed by relentless innovation, wholesome earnings and a resilient financial system. But investing is cyclical, and now I believe occasions may swing in favour of the FTSE 100.
The FTSE 100’s enchantment
The FTSE 100 is an actual underdog, held again by its publicity to old-world industries like vitality, mining and financials. However its underperformance has been overdone. Its trailing yield of three.5% smashes the S&P 500’s 1%. With dividends reinvested, that closes the hole over time.
Final 12 months, my portfolio holding Glencore (LSE: GLEN) was an enormous flop. The mining big’s share value dropped 23% as Chinese language demand for commodities slumped. But commodities are significantly cyclical, and when the Glencore share value flies, it actually flies. Regardless of final 12 months’s disappointment, it’s nonetheless up 50% over 5 years.
Glencore shares look grime low cost proper now, with a trailing P/E of 10.2 occasions. The trailing yield could also be a modest 2.82%, however the board has hinted at paying “top-up shareholder returns” in February. I’m crossing my fingers.
Within the longer run, Glencore ought to profit from the shift to electrical automobiles and renewable vitality, driving demand for copper, nickel, and cobalt. Its reliance on coal poses long-term ESG dangers although.
Regardless of being listed in London, Glencore has comparatively low publicity to the UK’s fortunes. Given in the present day’s home troubles, that could be a plus.
No matter occurs this 12 months, I wouldn’t be with out my S&P 500 tracker. However I’m additionally excited by the FTSE 100. Glencore is only one good alternative for me. There are a lot extra bargains on the market.
