The FTSE 100 broke by 8,000 factors in early April. May we see the beginning of a long-awaited bull run?

Effectively, no. At the very least, it appears, not but.

The Footsie took a short look above 8,000, didn’t like what it noticed, and shortly ducked down once more. It’s all the way down to 7,850 factors on the time of writing.

So what’s flawed? In spite of everything, forecasts for our high UK shares look robust. They’ve dipped a bit as estimates have been scaled again. And we’re nonetheless ready for 2023 outcomes to all are available in.

10% earnings development

However analysts predict whole earnings development from FTSE 100 shares in 2023 of near 10%.

In the beginning of the 12 months, the FTSE 100 was on an total price-to-earnings (P/E) ratio of about 11. The index has gained a bit of since then, however after this newest retreat, actually not very a lot in any respect.

The typical P/E over the previous decade has been round 16, and that’s near the Footsie’s long-term common.

Assuming it can get again round that mark, and factoring in that potential 10% earnings development, I reckon the FTSE 100 might simply be 30% undervalued proper now.

Dividends

After which let’s add within the forecast dividend yield. Based on AJ Bell‘s Dividend Dashboard, the Metropolis places it at 3.9% for the 12 months simply ended. And we see 4.2% for 2024, which is traditionally robust.

Traders can get greater than that from a Money ISA proper now, and that’s assured. However as soon as rates of interest fall, that may’t final.

By the tip of the 12 months, if we get the rate of interest cuts we hope for, Money ISAs, gilts and bonds might all look so much much less engaging. Would possibly that be the spur for a significant transfer again into shares and shares?

Low cost inventory?

For instance of how crazily low-cost I believe some FTSE 100 shares are proper now, let’s take a look at Lloyds Banking Group (LSE: LLOY). For no different cause, actually, than that I personal some.

The ahead Lloyds dividend stands at 5.4%. And the forecast P/E for 2024 is simply 9. What’s extra, development forecasts for the subsequent few years would drop the P/E as little as six, and push the dividend yield near 7%.

Are UK investor mad to not need to snap up a discount like that?

Effectively, the short-term danger remains to be there, with rates of interest hurting Lloyds’ mortgage enterprise. And once they fall, we must always see decrease lending margins… it hurts whichever means we take a look at it. I believe Lloyds shares might effectively face additional weak spot.

Sentiment

However by far the most important issue, for me at the least, is UK investor sentiment. Whereas the worry remains to be right here, UK share costs would possibly effectively keep low.

Nonetheless, I actually do assume we might see a lift in inventory market confidence within the second half of this 12 months.

And if the FTSE 100 doesn’t finish the 12 months effectively above 8,000 factors… effectively, we’ll simply have the ability to purchase shares low-cost for a bit longer.