Is the FTSE about to crash?

The UK inventory market has been a star performer since world markets peaked in early 2022. However after being a protected port in a storm final 12 months, are the FTSE 100 and FTSE 250 indexes heading for a crash in 2023?

Inventory markets crash

After 2020’s pandemic panic despatched world inventory markets plunging, costs rebounded strongly after ‘Vaccine Monday’ (9 November 2020). Certainly, US shares hit new highs throughout this enormous reduction rally, as seen beneath:

After peaking, each indexes plunged steeply. At its 2022 low, the S&P 500 crashed to three,491.58 on 13 October. That left it down greater than 1 / 4 (-27.5%) from its all-time excessive.

In the meantime, the tech-heavy Nasdaq Composite index collapsed even more durable, additionally falling to its 2022 low of 10,088.83 on 13 October. That left it down virtually two-fifths (-37.8%) from its November 2021 peak.

A terrific 12 months for worth buyers

In 2022, world shares misplaced round $25trn (£20.8trn) in worth. Additionally, collapsing bond costs wiped virtually $10trn (£8.3trn) from bond markets. But my household portfolio sailed via this storm, registering solely a low single-digit loss within the worst 12 months for shares and bonds mixed since 1929.

How did my spouse and I do that? From autumn 2021, I used to be sure that monetary property had been in an ‘the whole lot bubble’ and heading for a fall. Therefore, we stopped shopping for costly US shares and commenced constructing a money war-chest to purchase fallen shares.

As markets melted down in 2022, we purchased a variety of FTSE 100, FTSE 250, and US shares that appeared cheap or supplied engaging dividend yields. Briefly, we added steadiness and ballast to our portfolio by shopping for ‘boring’ worth shares.

This technique — dumping costly US shares, hoarding money, after which shopping for low cost UK shares — has paid off to this point. For our portfolio, it’s just like the 2022 crash by no means occurred.

Will the FTSE crash in 2023?

Having lowered our publicity to US inventory markets and elevated our funding in UK shares, ought to we be frightened? What if, say, the FTSE 100 and FTSE 250 each crash in 2023?

The FTSE 100 hit a file excessive of 8,047.06 on 16 February, simply over two weeks in the past. In the meantime, the FTSE 250 peaked at 24,353.85 on 7 September 2021.

As I write, the FTSE 100 stands at 7,944.32, down simply 1.3% from its peak. In the meantime, the FTSE 250 is at 19,906.94, down virtually a fifth (-18.3%) from its 2021 file excessive. In a single sense, the FTSE 250 has already crashed.

However after I view the FTSE 100 particularly, I see no apparent cause to concern a coming stock-market crash. The Footsie trades on a price-to-earnings ratio of 11.9, for an earnings yield of 8.4%. That’s seems to be low cost to me.

As well as, the blue-chip index provides a dividend yield of three.5% a 12 months. That’s roughly consistent with rates of interest supplied by prime financial savings accounts. Nevertheless, the FTSE 100’s money yield is roofed virtually 2.4 instances by earnings, which is a strong margin of security.

Summing up, regardless of the rising dangers of a UK recession (and home costs falling), I don’t count on the UK inventory market to crash this 12 months. Certainly, it nonetheless seems to be too low cost to me as we speak!