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It has been a improbable 12 months total for the UK inventory market. The FTSE 100 index is up 17% up to now in 2025, with simply a few weeks left to go. Once I take a look at the basic causes for the rally, there’s a compelling argument to be made as to why 2026 may provide extra of the identical, with some particular shares that might even outperform the index.
Trying on the intense facet
Even after positive aspects 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. Subsequently, it may 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 price by 0.25% tomorrow (18 December). Subsequent 12 months, analysts are pencilling in at the least two extra price 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 individuals to maintain cash in financial savings accounts. Traders then seemingly search for locations to hunt greater returns, such because the inventory market.
Lastly, even when the worldwide economic system underperforms or individuals get spooked by US midterm elections, commerce tensions or different components, the FTSE 100 may nonetheless do nicely. It’s residence to many defensive shares from sectors like utilities, telecoms and client staples. Traders have a tendency to purchase these shares after they get fearful.
A working example
One instance of a inventory that might be thought-about is SSE (LSE:SSE). The inventory is up 28% over the previous 12 months, serving to to information the index greater. But it may also be seen as a defensive inventory.
It makes cash through transmission of electrical energy to finish customers, together with a rising renewables arm with parts like offshore wind farms. It has completed nicely prior to now 12 months as a result of in a unstable macro setting, traders have regarded in direction of firms with predictable returns. SSE has ticked this field as a result of having long-dated earnings visibility.
Trying ahead, it’s engaged on a multi-year capex plan centered on networks and renewables. In idea, this could finally translate to greater 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 offers are important to many. Subsequently, it may do nicely (and assist the FTSE 100 as an entire) even when 2026 affords a bumpy street.
However there are dangers because it’s on the mercy of the regulator when it comes to worth caps or different restrictions. In consequence, this might hamper it sooner or later, relying on what modifications are made.
Even with these considerations, I believe it’s a inventory for traders to think about as a part of a play for additional positive aspects within the UK inventory market subsequent 12 months.
