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The S&P 500 posted one other cracking yr in 2024. It grew greater than 20% for the second yr in a row, leaving international markets trailing in its wake.
Development-hungry traders 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 annoyed as a result of I made a decision the chipmaker was most likely overhyped at the beginning of 2024. It’s up greater than 190% since I made a decision to not purchase it. Ouch.
As a price investor, it’s not the primary time I’ve regretted failing to leap on a red-hot momentum inventory. With luck, I’ll study.
The FTSE 100 is due an enormous restoration
However can the S&P 500 add one other 20% this yr? 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 & Basic World Expertise Index. Each have large stakes in Nvidia and the opposite tech mega-caps.
But I’m not satisfied 2025 will ship one other bumper yr for the US. A 20% achieve on prime of final yr’s rally would push valuations into much more stretched territory. The S&P 500 already appears dear, with the Shiller price-to-earnings (P/E) ratio at a staggering 37.26. In contrast, the FTSE 100’s P/E is a modest 15.76.
If earnings progress doesn’t meet expectations, US shares might hunch. And with the Fed unlikely to slash charges aggressively, Wall Avenue may battle to seek out its subsequent catalyst.
The US stays irresistible, pushed by relentless innovation, wholesome income and a resilient financial system. But investing is cyclical, and now I believe occasions might 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 power, 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 yr, my portfolio holding Glencore (LSE: GLEN) was an enormous flop. The mining large’s share worth dropped 23% as Chinese language demand for commodities slumped. But commodities are significantly cyclical, and when the Glencore share worth flies, it actually flies. Regardless of final yr’s disappointment, it’s nonetheless up 50% over 5 years.
Glencore shares look dust low-cost proper now, with a trailing P/E of 10.2 instances. 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 autos and renewable power, 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 right now’s home troubles, which may be a plus.
No matter occurs this yr, 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 loads extra bargains on the market.
