As I write these words, London’s Footsie is at 7,289. That’s over 4% down from its 17 January peak of 7,611 — which was its highest since its pre-Covid level of 7,675 on 17 January 2020, almost two years previously.
But the nervousness extends far beyond the UK’s shores. The FTSE World Index peaked on 4 January, and is now down 9% from there, while the pan-European Euro Stoxx 50 is down 7% from a 5 January peak.
Over the Atlantic, the Dow Jones is down 8% from a 4 January peak, while the tech-heavy NASDAQ is down almost 15% from a 3 January peak.
Plenty to worry about
Why are markets nervous, exactly?
Lots of reasons: inflation, the prospect of imminent interest rate rises, soaring energy prices, Covid-19, the prospect of war in Ukraine — it’s not difficult to find things to worry about.
Putting a little flesh on those bones, here in the UK inflation reached a 30-year high earlier this month, while the latest figures show that economic activity is at an 11-month low.
And even the politicians are now arguing among themselves over the merits of April’s coming tax rises — even though they voted for them in September.
Uneven fortunes
That said, looking at individual shares, the pain is unevenly spread.
Over in American markets, there’s been something of a rotation out of tech stocks, for instance. Stocks with Covid as a narrative backdrop have certainly suffered — think Peloton and Zoom — but even the ‘big hitters’ are down.
On the flip side, there’s a fresh appreciation of value shares and income plays. The Footsie might have fallen during January, but tobacco giant Imperial Brands is up 6%. Rival British American Tobacco is up 13%. HSBC is up 7%.
My own portfolio — stuffed with investment trusts, Real Estate Investment Trusts, income stocks and defensive stocks, is down just 3%.
Downward pressure
What to do? How to play this market?
Obviously, markets could fall further. Much further. Bad news on the economy front, bad news on the energy front, and bad news — or rather, worse news — on the inflation front: all of these could see markets fall heavily.
So too, equally obviously, with the front line separating Russian and Ukrainian troops.
Less dramatically, it’s also necessary to keep in mind the effect of inflation and energy prices on consumers’ disposable incomes. As household budgets get tighter, people will indulge in less discretionary spending — cinemas, pubs, restaurants, and general leisure activities, for instance. Shares in those sectors will feel the pain.
Watch for bargains
Even so, it’s worth keeping an eye on some of Footsie’s recent fallers, which may pop into ‘bargain’ territory if markets fall further.
Running my eye down my Google Sheets spreadsheet that show companies’ share prices between two dates, it’s not difficult to spot some potential candidates in the FTSE 100.
Croda International, for instance, down 18%. Experian, down 16%. Ferguson, down 12%. Hargreaves Lansdown, down 5%. Next, down 7%. And Greggs, down a whopping 21%.
As I’ve written before, many of my best investments have been in beaten-down temporarily unloved companies bought at bargain prices.
Mining company BHP, for instance, bought at 595p in January 2016 when the mining sector fell out of favour. As I write these words, the share price is 2,333p.
Remember: just as markets invariably overshoot on the upside, they just as invariably overshoot on the downside.
