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A few days ago investors were celebrating the FTSE 100 reaching an all-time high, they are now worried about a stock market crash. It’s a great investment, but not unusual. Such are the ups and downs of stock investing.
The FTSE 100 fell 1.16% today, largely in response to the Wall Street sell-off on Tuesday. He US S&P 500 The index fell 2% yesterday, its worst performance in two months.
Concerned? No, I’m buying shares.
Investors across the pond worry that interest rates will have to stay higher for longer as inflation is stickier than the US Federal Reserve would like.
The FTSE 100 suffered further damage after the mining giant red river announced a 38% drop in profits and cut its (very generous) dividend by more than half. Rio’s share price is down 2.77% as I write this.
Lloyds Banking Group has fallen 2.08% after reporting flat profits in 2022. Although at £6.93bn, they were still juicy enough to trigger fresh calls for a windfall tax on “excess profits” in the sector banking.
Given that Lloyds also increased its dividend by 20% from 2p to 2.4p and announced a £2bn worth of share buyback, I think the sell-off was overblown.
The sharp turn in sentiment has sent the FTSE 100 back below 8,000. I’m not exactly surprised. Markets never go up in a straight line. After a hot streak that lasted several months, a setback was almost inevitable.
Despite this week’s slide, the FTSE 100 is still up 4.48% year to date and the S&P 500 is up 4.53%.
Investors had been running ahead of themselves as they pushed to take advantage of the Fed’s long-awaited interest rate ‘pivot’. Now they are having a much-needed fit of realism.
Will the markets fall further? Yes, if I believe Michael Wilson, Chief US Equity Strategist at Morgan Stanley. He believes that the markets have entered the “death zone”a term used by mountaineers when they climb so high that it is difficult to breathe.
Wilson thinks we’re there today, and the S&P 500 could drop to 3,000 in a few months, a 26% drop from current levels.
I’m not afraid of a FTSE 100 drop
While the FTSE 100 has outperformed the US for the last year or so, in that doomsday scenario it would almost inevitably crash as well.
I feel like I should be worried, but I’m not. First of all, there is always some analyst predicting a market crash, and Wilson is a renowned bear. Also, over the years I have learned to view a stock market crash as a buying opportunity rather than a threat.
Last October, when the index was below 7,000, I went shopping on the FTSE 100 and enjoyed the rally that followed. I wouldn’t mind another opportunity like that, especially since I’ve been building up my cash reserves.
Also, I suspect that if the stock crashes, this will be the final phase of downtown that started in 2022. Things could look better after that, and quickly.
But who knows? No. Michael Wilson does not. Stock markets are totally unpredictable, except in one respect. In the long run, history shows that they make investors richer, as long as they last the course and resist the temptation to panic sell when things get a little shaky. That’s the last thing I’m going to do, despite today’s dire warnings.
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