After a summer when virtually everybody expected a stock market correction, it finally seems to be happening. The weight of the world’s worries are finally bearing down on the FTSE 100. At time of writing, the index hovers around 6,550, nearly 5% below its 52-week high of 6878.
Few would bet against it falling further. I certainly wouldn’t.
Fire Down Below
I’ve been amazed at just how relaxed markets have been during this turbulent summer. They have shrugged off Iraq, Syria and Gaza, eurozone deflation, Chinese credit and property bubbles, the Argentina default, and the slide to war in the Ukraine. Even mixed company earnings were largely ignored.
You could call this coolness under fire, but lately, it has begun to look like complacency.
Its as if markets believed the central banker backstop of low interest rates and quantitative easing would pump up asset prices forever.
Good News Bad
Perversely, the main thing markets have feared in recent weeks is the good news of falling US unemployment. If jobs and wages recover, the US Federal Reserve will tighten faster, finally putting an end to easy money.
But as Russian troops start massing on the Ukrainian border, and Putin beds in for a trade war with the West, markets are now sensitive to the geopolitical tremors.
I’ve been edgy since March, when I took profits on three vulnerable stocks in my portfolio, Tesco (which has since fallen 25%), Vodafone Group and GlaxoSmithKline (both now down around 15%).
And I’m still nervous today.
Problems, Problems
I don’t see any easy solutions. The Middle East just gets more bloody and intractable. The European Central Bank is reacting to the deflationary threat with paralysis and denial. Claims that China’s centralised model makes it immune to take credit meltdown sound suspiciously like “this time it’s different”, which it never is.
Putin has committed himself, and retreat is unthinkable. Sanctions will only feed Russian nationalistic fervour.
Markets, I suspect, are set to fall further.
So perhaps I am jumping the gun, because I am already fired up to start buying.
Money Saving Opportunity
One reason I’m ready to buy now is that there are already discounts to be had. With the FTSE 100 down nearly 5%, now is a good opportunity to start topping up a low-cost tracker.
The index doesn’t look overpriced now, trading at just 13.22 times earnings, nicely below the 15 times earnings often seen as fair value. Better still, it yields 3.53% — that’s more than seven times base rate.
Buy today, and you can lock into a rising income stream, as companies continue to offer generous dividend hikes.
Time Is On My side
Although I suspect the index will fall further, I can’t say that for certain. Timing the bottom of the market is impossible.
So I’m starting small, buying a little more of the market every time it falls. Since my investment horizon is more than 20 years, there is plenty of time for it to recover.
One day, I suspect FTSE 100 at 6,550 will look like a bargain.
Big Names, Low Prices
There’s another reason I’m investing.
As I mentioned earlier, shares such as Tesco, Vodafone and Glaxo are now available at double-digit discounts. Other big-name stocks such as Barclays, BP, Centrica and Diageo have also suffered sharp falls in recent months.
If you’re looking to buy top stocks at big discounts, there is no need to wait any longer.
I like buying stocks when markets are falling. The further they fall, the more I plan to buy.
