Talk of a stock market crash has been building for months. Last week, it felt like it might finally happen. The FTSE 100 ended the week down 1.64%, although investors can hardly complain. It’s still up 15.5% so far this year with dividends on top.
The S&P 500 dipped 1.65%, but given that it’s delivered double-digit annual returns for two years running and is up 12.5% this year, investors can’t grumble here either (except maybe those who bought early last week).
Will the FTSE 100 dip?
History shows that long term, shares beat almost every other major asset by a comfortable margin. Short-term market volatility is the price investors pay for that superior performance.
Sentiment is fragile. Talk of an artificial intelligence bubble refuses to fade. AI is impressive but far from perfect. Anyone who’s asked ChatGPT to pick stocks will know that it can make glaring errors and present stale financial data as fact. Markets are still working out how valuable this technology will be and how fast those returns might come through. Uncertainty is part of the process.
Nobody ever knows what’s coming next and that includes me. Crashes can be predicted for months and never happen, or hit without warning.
Given all that, the only sensible approach is to invest for the long run and accept that volatility is built into the journey. Dividends offer steady rewards in quieter spells and turbo-charge performance in the good times.
Long-term investing
At The Motley Fool, we think timing markets is risky and expensive, and it usually leads to worse outcomes than simply holding quality companies for years. Short-term trading racks up the charges too.
But we do like to take advantage of a stock market dip to pick up our favourite stocks at reduced prices (and grab higher yields). If the long-term case still holds, it can be a smart moment to strike. That’s exactly how I plan to respond if markets slump.
HSBC shares are on my radar
One stock I’m watching closely is HSBC Holdings (LSE: HSBA). Like other big FTSE 100 banks, it has benefitted from recent higher interest rates, boosting the margin between what it pays savers and charges borrowers.
The HSBC share price is up a stunning 45% over the past year and 175% over five, with dividends on top. Investors have benefitted from repeated share buybacks, which reduce the number of shares in circulation and lift the rewards for those that remain.
Last week, HSBC fell 5.7%, which makes it a touch cheaper than it was. The price-to-earnings ratio has dipped below 11.
The shares have also been hit by a $1.1bn legal impairment relating to a long-running Luxembourg lawsuit tied to Bernard Madoff’s Ponzi scheme. Yet third quarter pre-tax profits still came in at $7.3bn.
There are risks. China’s economy is slowing and geopolitical tensions remain a constant threat. Even so, with a long-term view, I feel HSBC could be a rewarding holding and investors might consider buying if the share price slips further.
HSBC is only one stock on my list. I’ll keep a close eye on the index and if share prices slide, I’ll go shopping for cut-price shares. Once bought, I’ll sit tight and wait for the recovery. It will come, given time.
