Is there a FTSE 100 crash coming? Here’s why I say no

It seems like we read a new headline talking up the chances of a FTSE 100 crash almost every day. But how likely is a crash, really?

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

There’s talk of a new stock market crash doing the rounds, and it must surely be holding the FTSE 100 back.

But I want to explain why I don’t see the FTSE 100 crashing in 2023. And I’ll also tell you why I don’t think it matters even if it does.

US vs UK

All the crash talk I read is about the S&P 500 being too high. And the Nasdaq, which has climbed again after its falls of 2022.

Passive income stocks: our picks

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

Nasdaq growth stocks are up by 75% over the past five years. And S&P stocks have gained 58% in the same time.

That’s pushed the S&P to a price-to-earnings (P/E) ratio of 25, which is above its long-term trend. That does looks a bit scary to me. And yes, I think it could be an overheating index ready for a fall.

But our poor old FTSE 100 is down 2.5% in the same five years, on a P/E of about 11. And it doesn’t look at all like a bubble waiting to burst to me.

Cash and dividends

Stock markets don’t often crash when an index has already had a bad decade and is on a low valuation. And it’s rarer for a crash to come along when cash flows and dividends are rising.

And that’s what I see on the FTSE 100 right now.

Dividend forecasts have slowed a bit. But at the halfway stage in 2023, analysts were forecasting a total payout of £83.8bn from FTSE 100 stocks. That’s a fair bit more than the £76.1bn paid in 2022.

It’s also not far off the all-time record of £85.2bn set in 2018, before Covid. Oh, and this is ordinary dividends only. It doesn’t include specials, or any of the big share buybacks announced so far.

Earnings growth

The City also thinks that earnings growth is going to be there to cover the predicted dividend gains.

Forecast pre-tax profit looks set to grow by a total of more than £50bn. And earnings should cover dividends, on average, a little over two times.

Interestingly, it looks like the biggest share of earnings growth in 2023 should come from financial stocks. And they’re on some of the FTSE 100’s lowest valuations.

We see banks on P/E multiples of only around five or six. And insurers and investment firms aren’t valued a lot higher.

Does it matter?

None of this, to me, makes FTSE 100 stocks look overvalued and set for a crash.

Saying that, I’d rate a correction over in the US as a very real possibility. And if that happens, I’d expect stock markets around the world to decline as a result.

But I just don’t see the potential for any sizeable declines here, not with Footsie stocks on such low valuations and high dividend yields.

New opportunity?

And if the FTSE 100 does wobble, I say it would be a good thing. It could give us a chance to snap up cheap UK shares even cheaper. The real challenge would be deciding which ones to buy.

Pound coins for sale — 31 pence?

This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Views expressed 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.

More on Investing Articles

Investing Articles

At a 52-week low but forecast to rise 73%! Is this growth share the FTSE’s top recovery play? 

This FTSE 100 growth share has taken an absolute beating over the past two years but Harvey Jones says the…

Read more »

Investing Articles

This FTSE 250 share offers a juicy 9.8% yield. Will it last?

This well-known FTSE 250 share has a percentage dividend yield approaching double digits. Should Christopher Ruane add the income share…

Read more »

Investing Articles

Is a £333,000 portfolio enough to retire and live off passive income?

A third of a million pounds can generate a serious amount of passive income, but relying on this sum alone…

Read more »

The flag of the United States of America flying in front of the Capitol building
Investing For Beginners

Why FTSE 100 investors should pay attention to ‘Liberation Day’

Jon Smith explains why the upcoming tariff announcement from across the pond could have an impact on the FTSE 100,…

Read more »

Concept of two young professional men looking at a screen in a technological data centre
Investing Articles

Here’s why Nvidia stock fell 13% in March

The Nvidia stock price rise was looking unstoppable. Should investors now be wondering if the same might be true of…

Read more »

US Stock

It’s ISA deadline week! Here’s my 3-step game plan

Jon Smith tries to calm the hype around the last minute ISA rush to buy stocks and explains why he's…

Read more »

Snowing on Jubilee Gardens in London at dusk
Investing Articles

£10,000 invested in BAE Systems shares at Christmas is now worth…

BAE Systems shares have been surging in the FTSE 100 in 2025, driven higher by the wavering US commitment to…

Read more »

Investing Articles

Up 19% in 2 weeks, can the Tesla share price rebound further?

Tesla's first-quarter delivery numbers came out today. Will they help persuade our writer to invest his money at the current…

Read more »