MENU

Is This A FTSE 100 Buying Opportunity Or A Warning Of The Carnage To Come?

Corks popped when the FTSE 100 finally burst through 7000 back in March, but the fizz has long gone out of the stock market party. The benchmark UK index is plummeting back towards the sobering figure of 6500, more than 8% below its 52-week high.

It took more than 15 years to recapture those pre-Millennium highs but the heady days didn’t last long. So what happens next?

Fear And Loathing

There are good reasons why the fun came to an end. The interminable (and still unresolved) Grexit crisis. The looming Chinese hard landing and suspicious currency manoeuvrings. A setback for “Abenomics” as the Japanese economy starts shrinking again.

There is no end to this world of worry. Russia is in recession. Latin America has lost its rhythm. The UK has disappointed in recent weeks, as has the US. Despite this, the US Federal Reserve looks set to raise interest rates next month for the first time since June 2006. The world is watching to see the impact this will have on everything from stock market sentiment to emerging market debt.

Black September?

September is historically the most fraught month of the year for investors, and there is already plenty to worry about. There could be carnage ahead.

The truth is, of course, that nobody knows how this will play out. There are just too many variables, and too many unknown unknowns. So what on earth do you do?

Cashing Out

Don’t even talk to me about cash. Interest rate hikes are unlikely to spell salvation for savers. Banks are actually slashing savings rates to give them wriggle room in case rates do rise.

If you’ve read this far, you will understand the risks of investing in stocks and shares, and appreciate the long-term rewards. But with the FTSE 100 up just 1.9% in the last 12 months, you might want to do more than simply track the index.

Recent share price falls have thrown up some great opportunities. Especially if you like stocks that pay a juicy dividend, which account for roughly 40% of the money you will make from investing in stocks and shares, provided you re-invest them for growth.

Field Of Yields

There are some fantastic yields right now. Many of these are paid by companies who have seen their share prices slump lately, so you have to understand the risks. Mining giants Anglo-American and BHP Billiton both yield more than 7%.

Oil giants BP and Royal Dutch Shell both yield nearly 7%. Rio Tinto, HSBC Holdings, energy giant SSE and pharmaceutical giant GlaxoSmithKline yield around 6%. Remember, these dividends aren’t guaranteed, and at these levels could be trimmed in future, so do your research.

To protect yourself, don’t invest all your money at once. Use your ammunition wisely as there may be plenty of targets to shoot at over the next few turbulent months. I like investing in days like these, because this is when fortunes can be made.

At times like these, you need to pick your stocks wisely. Good companies can thrive even in the trickiest market conditions.

Motley Fool's head of UK investing has found one such company, which he has named the 1 'under-the-radar' pharmaceutical stock with blockbuster potential.

The stock has already delivered a strong return and our top expert believes there could be more to come. In fact, he reckons it offers investors potential upside which may be as high as 45%!

To find out which stock we consider one of the best small caps in the country, simply download our brand-new wealth report. It is free and without obligation, so click here now.

Harvey Jones has no position in any shares mentioned. The Motley Fool UK has recommended shares in Glaxo and HSBC. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.