It’s been a pretty spectacular year for stock markets, although sadly in the wrong way. The crash just before Christmas (Friday 21 December) has left the FTSE 100 down 13% year-to-date, and Wall Street down around 9%.
Politics has weighed heavily on investors this year, notably the US-China trade war, and Brexit. Many are also concerned about the hawkish Fed, which has just hiked rates for the fourth time this year, triggering rumours that a disgruntled President Donald Trump may fire chair Jerome Powell. Friday’s US sell-off has made this December the worst for a decade.
There could be worse to come in 2019 as none of the political problems have been solved, and may even be coming to a head. It looks like the 10-year stock market bull run might finally be coming to an end as investor sentiment hits new lows. Do you know what this looks like to us at Motley Fool? Regular Fools will know the answer. A buying opportunity.
Things could undoubtedly get worse before they get better. Only a fool or a knave would say otherwise in these strange times. Donald Trump is unpredictable, to put it mildly, and so is Brexit. Uncertainty is everywhere, as Paris burns, Italy revolts against the EU, emerging markets crash and the Chinese stock market falls 26% year-to-date, amid fears of over rising debt and slowing GDP growth.
So to suggest that the FTSE 100 could hit 8,000 from here looks crazy, right? That suggests upside of almost 20%. It looks even crazier with the CBI, Institute of Directors, British Chambers of Commerce, Federation of Small Businesses and the manufacturing body EEF combining to warn that firms are “watching in horror” as political infighting is seen as more important than securing a Brexit deal, and cabinet ministers put the army on standby ahead of a possible no-deal departure.
There’s also the threat of a Jeremy Corbyn Labour government, which could really hammer investor confidence.
Yet the gloom may just have been overdone and, if so, the FTSE 100 could fly. Russ Mould, investment director at AJ Bell, said the index is packed with companies which look cheap on an earnings basis and offer a fat dividend yield. Stocks are trading at levels last seen more than two years ago, in December 2016.
Even if we do get the dreaded “no-deal” Brexit, much of the bad news has been factored in, while signs of a deal could trigger a healthy relief rally.
Get your greed on
The FTSE 100 also looks cheap, having underperformed its global rivals, with more than $20bn withdrawn from UK investment funds since the June 2016 referendum. It now trades at just 11 times consensus earnings estimates for 2019, and yields a juicy prospective income of 4.9%, more than 6.5 times current base rate of just 0.75%. Dividends are set to hit a record high next year, further rewarding long-term investors.
The FTSE 100 is unloved. Investors are fearful. Now could be the perfect time to get greedy.
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harveyj has no position in any of the shares mentioned, although he does own tracker funds iShares FTSE 100 ETF and HSBC FTSE 100 Index. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.