FTSE 100 stocks have enjoyed a terrific start to the year, rising 4.38% to hit their all-time high of 7,933 yesterday morning.
They had a pretty solid 2022, growing 0.9%. That would be disappointing in a normal year, but last year wasn’t normal. In the US, the S&P 500 index crashed 19.4%, while the Nasdaq 100 took an even worse beating, falling by a third.
This year could still be bumpy
Right now, all eyes are on the US Federal Reserve. If chair Jay Powell gives the merest hint that interest rates have peaked, global shares prices will rocket, as will the FTSE 100. But if stubbornly high inflation forces the Fed to carry on tightening, the US could tumble into recession and take the rest of us with it.
Right now, Powell is choosing his words carefully. So will FTSE 100 stocks keep powering upwards or come crashing back down?
Today, the outlook for the UK economy is pretty bleak. Yet that does not necessarily matter, as far as the FTSE 100 is concerned. That’s because the blue-chip companies listed on the index generate an incredible 79% of their earnings overseas.
Mining giant Antofagasta, pharmaceutical firm AstraZeneca, spirits maker Diageo, educational publisher Pearson and telecoms giant Vodafone are just some of those that make far more money in foreign markets than in the UK.
Of course, we cannot rule out a global recession either, depending on economic and political factors such as how far the Fed tightens, whether China recovers quickly from Covid, what happens in Ukraine, and so on.
If things turn nasty this year, FTSE 100 stocks will inevitably get caught up in it. Although as we saw in 2022, the index does have defensive prowess.
It doesn’t matter, you know
If I’m being honest, I have to admit there is no answer to the question I posed at the start of this article. Nobody knows for sure whether FTSE 100 stocks will crash in 2023. There are just too many variables. All I know is that over the longer run, markets rise a lot more often than they fall.
There is always some analyst, somewhere, calling a market meltdown. Yet this actually makes deciding when to invest easier. I accepted long ago that I will never find the perfect time to buy shares. Stock markets will always be volatile, and completely unpredictable.
There is a simple way I get round this. By investing for the long term. That means a minimum of five years, and ideally 10, 20, 30 years or longer. That way it doesn’t matter too much if FTSE 100 stocks disappoint this year. What matters is where they stand when I finally start drawing an income from my portfolio, which is many years away.
In fact, I might even celebrate if FTSE 100 stocks do crash in 2023. It would allow me to buy more of them, at a cheaper price. Plus my reinvested dividends will pick up more stock too.
