There was no stock market crash in September or October, which are traditionally two of the bumpiest months of the year. It was a bumpy time though, with the FTSE 100 falling 1.8% and S&P 500 down 7.3% over the period.
In fact, Wall Street is in technical correction territory since its summer peaks, defined as falling at least 10%.
Investors have finally woken up to the fact that interest rates are likely to stay ‘higher for longer’, as central bankers continue their fight inflation. This has weighed on markets even more than the Israel-Hamas war, where most traders still reckon the major regional powers will resist getting sucked in.
November can be bleak
As I write, on the final trading day of October, the FTSE 100 stands at around 7,321 and the S&P 500 at 4,181. It would only require a drop of less than 4.5% for the former to dip below 7,000 for the first time since October 2022, while the latter last traded below 4,000 in March.
On Tuesday, the World Bank warned that conflict in the Middle East could send oil prices skyrocketing towards $150 a barrel. That would definitely trigger a stock market crash and a full-blown global recession too.
However, the World Bank also said if contagion is contained, oil could retreat to $81. That would give markets a lift. It’s wise to hedge its bets. The problem with making predictions is that there are just too many variables. Also, stock markets have developed a habit of treating bad news as good news.
November is just as likely to lay the foundations of an end-of-year Santa rally than a stock market crash.
I’m getting stuck in
Nobody knows what the future holds, but I do know three things about investing. One, history shows that shares beats almost every other asset class in the longer run. Two, the longer I leave my money invested, the more time it has to compound and grow. Three, a lot of my favourite shares are much cheaper than they were just a month or two ago.
The FTSE 100 now trades at just 9.6 times earnings. That’s well below the valuation of 15 that’s commonly seen as fair value. Shares listed on the index yield an average 4.03% and some of my favourite stocks pay a lot more income than that.
Legal & General Group currently yields 9.16% a year, while wealth manager M&G yields a thunderous 9.89%. While yields are never guaranteed, especially high ones, these do look sustainable.
I could hang around to see if markets crash and my favourite shares get cheaper still (and their yields get bigger). But they’re just as likely to recover, in which case I will kick myself for waiting.
I don’t know if the stock market will crash in November, but I do know this. The FTSE 100 is full of bargain stocks. I’ll do what I always do, and buy them whenever I have the cash. If shares do plummet, I’ll try to buy even more at the lower price. While I cannot predict a crash, I like to take advantage when shares do fall.
