Political deadlock in Rome has reignited worries about Europe. Should you lock in your profits now?
Stock markets throughout Europe slumped this morning after Italy's political elections ended in stalemate.
The possibility of a hung parliament in Rome -- and the rising popularity of Italy's anti-austerity parties -- revived fears of a fresh wave of eurozone trouble. Italy's FTSE MIB index dived 4% on the political deadlock, while the FTSE 100 index lost 80 points.
Coming just days after the UK lost its top-tier AAA credit rating, it seems the political and economic news of late has suddenly turned for the worse.
And these developments may put the brakes on the FTSE 100, which breached 6,000 at the start of the year and has been on a flyer ever since. Before today, the blue-chip index had rallied 8% during 2013 and 13% since mid-November.
Indeed, the last few months have been a genuine mini-bull run, with the market recording regular daily gains interspersed only by the occasional losing session.
But could now be the time to sell and prepare for the FTSE 100 to dive back below 6,000?
On the one hand, at 6,275, London's leading index is valued at 13 times earnings and offers a 3.5% yield -- ratings that do not seem to be too onerous.
That said, the market's valuation is skewed by a handful of lower-rated mega-caps -- and there may be good reason why Royal Dutch Shell, for example, trades at just 8.7 times profits.
Meanwhile, consumer-brand favourites such as Diageo, SABMiller and Unilever have been recording fresh all-time highs and trade on forward multiples of 19 or more. Yet all three have reported underlying sales growth in single digits of late.
Elsewhere, water firms such as Severn Trent and United Utilities trade at 18 times forecast earnings -- yet the long-term growth rate for both companies can't be that much greater than inflation.
Meanwhile, Croda International reported results today that showed growth of less than 5% -- yet the chemicals firm is valued at 19 times profits.
Certainly the market seems to be pricing many FTSE 100 names in an optimistic fashion, so it may make sense to bank some profits on shares that have done well of late and whose valuations look very much up with events.
Although today's market does not look feel like the top of the dotcom boom, having a bit more cash on the sidelines should make down days like today -- and the FTSE ever diving back below 6,000 -- a little bit more bearable.
Indeed, if you already have some cash on hand and are looking for potential bargains to bag, this free report reveals several blue chips that could outperform even if the market suffers a prolonged setback.
The shares identified are familiar names that offer a mix of fat dividends, defensive qualities, robust prospects and low ratings. These potential FTSE winners can be yours by clicking here right now.
> Maynard does not own any share mentioned in this article. The Motley Fool has recommended shares in Unilever.