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The FTSE 100 hitting 10,000 is a psychological milestone rather than a fundamental turning point. Still, it says plenty about the market backdrop. After years of lagging the US market, the UK’s blue-chip index has benefited from easing inflation, falling interest rate expectations, and a steady recovery in risk appetite.
It’s also worth remembering what the FTSE 100 actually represents.
The index is dominated by global businesses in energy, mining, consumer goods, and financials, with the majority of revenues earned overseas. A weaker pound over time, combined with resilient commodity prices and strong cash generation, has supported earnings growth even when the domestic economy has struggled.
That’s not the only factor pushing the index upwards. Banks have been a huge growth driver over the past two years. Banks now represent the second, ninth, eleventh, fourteenth, and eighteenth-largest companies on the index.
For investors, the move to 10,000 doesn’t mean anything particularly noteworthy. Obviously, it does suggest that those exposed to the index will have seen their wealth increase accordingly.
Is the index still cheap?
A recurring theme in recent years is that the FTSE 100 has looked cheap compared with US stocks. There were several reasons for this, many tied to the UK’s weaker economic outlook and political uncertainty — even though roughly 70% of FTSE 100 revenues are generated overseas. One of the most important, and often overlooked, factors has been liquidity.
The US equity market is simply far more liquid. American pension funds, ETFs, and retail investors consistently channel capital into domestic stocks, creating deep pools of demand. By contrast, UK equities have faced persistent outflows, as pension schemes de-risked and global funds underweighted London in favour of New York.
In short, UK stocks look inexpensive versus peers in the US. Banks are a prime example of this. However, there’s been a significant change in how much the market is willing to pay for British companies. That’s should be seen as a positive as a vibrant capital market is good for almost everyone. Positive sentiment could even lead to more listings.
One to watch
Any stocks investors should be watching as we move into 2026?
I believe Melrose Industries (LSE:MRO) remains one of the most attractive and overlooked stocks on the index.
Through GKN Aerospace, the group is a Tier 1, sole-source supplier of critical engine and structural components to all major global manufacturers — a position built over decades and extremely difficult to replicate.
Today, its technology features on around 90% of active commercial and military engines, with roughly 70% of revenues coming from long-term contracts where it is the exclusive supplier. This gives it pricing power.
Despite this, the valuation remains modest. Shares trade at around 15.1 times forward earnings, with a price-to-earnings-to-growth ratio of just 0.8. That’s a clear discount to peers such as Rolls-Royce, GE Aerospace, and Safran. The business also benefits from a resilient aftermarket, which delivers high-margin revenue even during industry downturns.
Net debt of about £1.67bn is the key risk, but with strong cash generation and ambitious growth targets through 2029, I think investors should consider Melrose Industries.
