The FTSE 100 is having a good year. But what about 2022?

The FTSE 100 index is up nearly 12% in 2021 and almost 23% over one year. But what if the stock market crashes in 2022? Should I keep buying shares now?

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The FTSE 100 index has had a pretty good run in 2021. The UK’s blue-chip index is up 1% over five days, 4.5% over one month, and 3.1% over six months. It has also gained 11.7% this calendar year and almost a quarter (+22.6%) over one year. But the Footsie has had a poor half-decade, rising by a mere 2.8% over the past five years. (All these figures exclude dividends, which account for a significant proportion of long-term returns from UK stocks.) But what might happen to the index in 2022?

The FTSE 100 goes nowhere

It’s also worth noting that the FTSE 100 has barely budged this century. At the end of 1999, the Footsie hit a record closing high of 6,930.2 points. As I write, it hovers around 7,215.99, for a gain of just over 285 points (+4.1%) in almost 22 years. That works out at a truly terrible return of under 0.2% a year (excluding dividends). So much for the benefits of long-term investing. However, adding in cash dividends of say, 3.3% a year takes this figure to 3.5% a year. At least that’s better than nothing.

UK stocks look cheap to me

Today, I would argue that the FTSE 100 looks far from expensive. The Footsie trades on about 15 times earnings and an earnings yield of 6.7%. It also offers a forecast dividend yield of around 4% for 2021. While the rest of the world keeps blowing market bubbles, these fundamentals look cheap to me. But compared to the US, the UK market is a mere minnow — and that worries me.

Today, the total market value of all London-listed stocks (including the FTSE 100) exceeds £4.5trn ($6.2trn). But this is tiny in comparison to the US, where total market value is over $46.4trn (£33.8trn), using the Dow Jones US Total Stock Market Index. That’s more than double the value of US stocks during the lows of ‘Meltdown Monday’ (23 March 2020). In fact, US stocks now account for around three-fifths (60%) of the FT World Index, according to Philip Coggan writing in the Financial Times last month.

What next for the Footsie?

One old stock-market saying goes something like this, “When the New York market sneezes, London catches a cold”. Today, the US S&P 500 index trades on 30.5 times earnings and an earnings yield of 3.3%. Also, it offers a dividend yield of a mere 1.3% a year. Another time I can clearly remember US stocks being so highly valued was at the height of the 90s boom. And this was just before the dotcom crash started in March 2000. So when I worry about the FTSE 100 and the wider London market, I’m really worrying about New York.

Despite the FTSE 100’s fundamentals looking good to me, I still worry that the Footsie might have a disappointing 2022. Worries around ‘sticky’ inflation, rising oil & gas prices, higher interest rates, and slowing global growth might dent investors’ optimism. Likewise, hefty US stock valuations could trigger a full-blown stock market crash next year. And if the US enters a bear (falling) market, then the UK will surely follow.

Finally, whatever happens in 2022, it won’t stop me from buying cheap stocks. Indeed, if another market meltdown does come along, I’ll do exactly what I did in the spring of last year. I’ll pump every spare penny we have into buying cheap shares at newly discounted valuations. Being bold during periodic market crashes has boosted my family wealth enormously, so I’ll keep my nerve in 2022!

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services, such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool, we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Happy young plus size woman sitting at kitchen table and watching tv series on tablet computer
Investing Articles

Could Raspberry Pi shares hit £5 by 2030?

After a strong start out of the blocks this month, our writer asks whether Raspberry Pi shares could move further…

Read more »

Close-up of British bank notes
Investing Articles

Five 5%+ yielders I’d buy for an ISA today!

Our writer identifies a handful of FTSE 100 and FTSE 250 firms each yielding at least 5% he'd happily buy…

Read more »

Front view photo of a woman using digital tablet in London
Investing Articles

5 stocks with 5%+ yields I’d love to buy and hold in a Stocks and Shares ISA

Harvey Jones is keen to add these five FTSE 100 high-yielders to his Stocks and Shares ISA, ideally before they…

Read more »

A young Asian woman holding up her index finger
Investing Articles

I’d target £880 of passive income annually, spending £10K now on this FTSE 100 share

Our writer explains how he would add to his diversified portfolio happily by investing in this FTSE 100 passive income…

Read more »

Light trails from traffic moving down The Mound in central Edinburgh, Scotland during December
Investing Articles

3 reasons I think the Scottish Mortgage share price could keep rising

Christopher Ruane explains a trio of reasons he thinks the once-mighty Scottish Mortgage share price could be set to increase…

Read more »

Syringe and vial on blue background
Investing Articles

Is this forgotten FTSE share about to make investors rich all over again?

Not long ago, this FTSE share was all the rage before demand dropped off and things went south. Is it…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

I’d use these 5 Warren Buffett approaches to build wealth

Christopher Ruane outlines a handful of investing lessons from billionaire Warren Buffett that he thinks can help a small investor…

Read more »

US Stock

Nvidia stock: 3 things investors need to know as it surges towards $150

Nvidia is a stock that's had an extraordinary run in 2024. Edward Sheldon highlights some important things investors should know.

Read more »