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.

Should you invest £1,000 in Aviva right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Aviva made the list?

See the 6 stocks

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.

But this isn’t the only opportunity that’s caught my attention this week. Here are:

5 Shares for the Future of Energy

Investors who don’t own energy shares need to see this now.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — sees 2 key reasons why energy is set to soar.

While sanctions slam Russian supplies, nations are also racing to achieve net zero emissions, he says. Mark believes 5 companies in particular are poised for spectacular profits.

Open this new report5 Shares for the Future of Energy — and discover:

  • Britain’s Energy Fort Knox, now controlling 30% of UK energy storage
  • How to potentially get paid by the weather
  • Electric Vehicles’ secret backdoor opportunity
  • One dead simple stock for the new nuclear boom

Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!

Grab your FREE Energy recommendation now

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

Middle-aged white man pulling an aggrieved face while looking at a screen
Investing Articles

This S&P 500 dividend stock has crashed 48% and now has a P/E of 13!

One blue-chip dividend stock from the S&P 500 index has lost nearly half its value in just four weeks. Is…

Read more »

National Grid engineers at a substation
Investing Articles

Here’s how much £10,000 invested in National Grid shares 5 years ago is now worth…

Although he doesn’t own any National Grid shares, our writer’s a bit of a fan of the stock. Here, he…

Read more »

Nottingham Giltbrook Exterior
Investing Articles

£10,000 invested in Marks and Spencer shares 10 years ago is now worth…

Have Marks and Spencer shares delivered a positive return in the last decade? And should I consider buying the FTSE…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

Down 15% despite strong earnings forecasts, should investors consider this FTSE medical tech giant?

This FTSE 100 medical equipment manufacturer is forecast to see excellent earnings growth in the next three years and looks…

Read more »

UK financial background: share prices and stock graph overlaid on an image of the Union Jack
Investing Articles

The Burberry share price rises despite reporting a post-tax loss of £75m!

Our writer’s surprised how the Burberry share price has reacted following the release of the luxury fashion brand’s latest results.

Read more »

Satellite on planet background
Investing Articles

Down 7%, is BAE Systems’ share price an unmissable bargain for me, especially after its Q1 trading update?

BAE Systems’ share price has dipped recently, despite a strong update for the first quarter, leaving it looking even more…

Read more »

Thin line graph
Investing Articles

This 10%-yielding FTSE 250 dividend stock looks great! But does it have long-term promise?

Discover why this 10%-yielding FTSE 250 stock could be a strong long-term income investment – and what risks investors should…

Read more »

Businessman hand flipping wooden block cube from 2024 to 2025 on coins
Investing Articles

My 9,249 Lloyds shares paid me income of £303 in 18 months – I’ll get another £195 next week

Harvey Jones says his Lloyds shares have delivered a modest stream of dividends in the last year or so, and…

Read more »