After reaching record highs in May this year, growth in the UK stock market has tapered off. The FTSE 100 almost fell back below 8,000 points earlier this month (November) after the October Budget and US election shook things up.
With several new policies affecting markets both at home and abroad, what’s in store for investors next year?
To answer that question, I sought the wisdom of experts from the UK and the US.
S&P 500 outlook
Donald Trump’s trade tariffs are expected to send interest rates soaring, which could hurt US stocks. As such, most analysts don’t expect strong growth next year.
David Kostin, the chief strategist for US equities at Goldman Sachs, thinks the S&P 500 could reach 6,500. That would be roughly a 9% gain from current levels — considerably less than the 26% growth achieved so far this year. Morgan Stanley expects similar growth.
Wells Fargo has raised the upper end of its target to 6,700 from 6,400. It believes tariffs will be phased in gradually, with most negative effects delayed until 2026. BMO’s chief investment strategist Brian Belski eyes similar growth, with a belief that earnings growth is understated.
FTSE 100 outlook
As in the US, UK analysts remain cautious with a dash of optimism. According to Jefferies, 66% of market respondents expect the FTSE 100 to end 2025 higher. That’s an improvement from only 50% last year.
The Economic Forecast Agency predicts the FTSE 100 will reach somewhere around 9900 points in December 2025, up 21% from today. UBS believes the FTSE 250 could take off in 2025, saying it offers “a unique blend of resilience and growth potential.”
A promising FTSE 250 stock
One stock I think has potential is ITV (LSE: ITV). The major British broadcaster and production company was in the news this week after it became a takeover target. The low share price has attracted bid interest from private equity firm CVC Capital Partners.
The company reportedly wants to split ITV up, taking on the Studios arm for itself and selling off broadcasting.
The share price jumped 9% on the news to 71p, recovering losses made earlier in November.
ITV has had a rough few years as it struggles to compete with digital streaming services like Netflix and Disney+. While its Studios division continues to enjoy success with shows like Rivals and Love Island, the broadcasting arm is struggling to turn a profit. Declining revenues threaten profits and put it at risk of falling further into debt. Earnings are forecast to decline next year before recovering in 2026.
But the falling price also equates to an undervaluation. It’s now trading at 72% below fair value using a discounted cash flow model, with a price-to-earnings (P/E) ratio of 5.7. The threat of a buyout may just give it the boost it needs to recover, which could benefit shareholders if it rejects the offer.
The yield of 7.6% remains one of the stock’s most attractive prospects to me. It’s well-covered by earnings and is forecast to increase by 0.5% per year going forward.
I’m not sure what will happen but for now, I’m holding my shares in anticipation.
This post was originally published on Motley Fool
