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The UK stock market has been a stellar performer since global markets peaked in early 2022. But after being a safe harbor in a storm last year, are the FTSE 100 and FTSE 250 Are the indices headed for a crash in 2023?
stock markets crash
After the 2020 pandemic panic caused global stock markets to crash, prices rallied strongly after ‘Vaccine Monday’ (November 9, 2020). In fact, US stocks hit new highs during this big relief rally, as seen below:
| Index | its highest point | Date |
| S&P 500 | 4,818.62 | 4 January 2022 |
| Nasdaq Composite | 16,212.23 | 22 November 2021 |
After peaking, both indices plunged sharply. At its 2022 low, the S&P 500 it crashed to 3,491.58 on October 13. That left him more than a quarter (-27.5%) below his all-time high.
Meanwhile, heavy technology Nasdaq Composite the index collapsed further, also falling to its 2022 low of 10,088.83 on October 13. That left it almost two-fifths (-37.8%) below its November 2021 peak.
A big year for value investors
In 2022, global stocks lost around $25 trillion (£20.8 trillion) in value. Furthermore, the collapse in bond prices removed almost $10bn (£8.3bn) from the bond markets. Yet my family’s portfolio sailed through this storm, posting only a low single-digit loss in the worst year for stocks and bonds combined since 1929.
How did my wife and I do this? Since the fall of 2021, he was certain that financial assets were in an “everything bubble” and headed for a crash. So we stopped buying overpriced US stocks and started building a war chest to buy down stocks.
As markets crashed in 2022, we bought a wide range of FTSE 100, FTSE 250 and US stocks that looked cheap or offered attractive dividend yields. In short, we add balance and drag to our portfolio by buying ‘boring’ value stocks.
This strategy—dumping expensive US stocks, hoarding cash, and then buying cheap UK stocks—has paid off so far. For our portfolio, it is as if the 2022 crash never happened.
Will the FTSE crash in 2023?
Having reduced our exposure to US stock markets and increased our investment in UK stocks, should we worry? What if, say, the FTSE 100 and FTSE 250 crash in 2023?
The FTSE 100 reached an all-time high of 8,047.06 on February 16, just over two weeks ago. Meanwhile, the FTSE 250 reached a high of 24,353.85 on September 7, 2021.
As I write, the FTSE 100 stands at 7,944.32, just 1.3% below its high. Meanwhile, the FTSE 250 is at 19,906.94, almost a fifth (-18.3%) below its 2021 all-time high. In a sense, the FTSE 250 has already collapsed.
But when I look at the FTSE 100 in particular, I don’t see any obvious reason to fear an upcoming stock market crash. The Footsie is trading at a price-earnings ratio of 11.9, for an earnings yield of 8.4%. That seems cheap to me.
In addition, the blue-chip index offers a dividend yield of 3.5% per year. That’s roughly in line with the interest rates offered by major savings accounts. However, the FTSE 100 cash yield is covered almost 2.4 times by earnings, which is a solid margin of safety.
In short, despite the growing risks of a UK recession (and falling house prices), I don’t expect the UK stock market to crash this year. In fact, it still looks too cheap to me today!
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