After another bumpy September many investors will be bracing themselves for a full-blown stock market crash in October. It would hardly come as a shock, given all of the bad news out there.
September is the worst year of all for markets, with data going back to 1928 showing Wall Street has fallen by an average of 1.12% over the month. It lived up to its reputation this year too, with the S&P 500 falling 5.05%.
Fears that the US Federal Reserve would have to carry on hiking interest rates to destroy inflation drove up bond yields, boosting the appeal of low-risk US Treasuries compared to riskier equities.
How worried should we be?
October can also be fraught. The Bank Panic of 1907, the Wall Street Crash of 1929, and Black Monday 1987 all happened during this month. With China also facing a potential meltdown, it wouldn’t take a huge leap of imagination to envisage another massive sell-off. So how do we respond?
I never place much faith in market forecasts. While I could list a heap of reasons why markets could crash, I could draw up a similar list showing why they won’t. If September’s inflation figure is notably lower, as many expect, we could just as easily see a rapid recovery.
I think the S&P 500 was overbought, thanks to the hype around artificial intelligence (AI). The September dip has partially reversed that. While I suspect it may have further to fall, at some point this will bring out the bargain seekers.
The FTSE 100 is a very different beast. It actually rose in September, by a halfway decent 1.92%. Measured over one year it’s up 10.12%, comfortably above its long-term average of 8%. That took me by surprise. Given all the gloom about the UK, and I’d assumed it must have fallen.
London’s blue-chip index still looks much better cheaper than the S&P 500. Shares listed on the index trade at around 12 times earnings, against 24 times in New York. The FTSE 100 doesn’t need to crash to represent good value. It’s already cheap.
Low valuations, high yields
It’s a great source of dividends too. Currently, FTSE 100 stocks yield 3.8% on average. The actual return is much higher, according to AJ Bell. Shares on the index will hand investors £122bn this year via ordinary dividends, special dividends and buybacks. That will lift the total cash yield to 6%. Any share price growth is on top of that.
Investors like me who prefer to buy individual stocks can find terrific value all over the place. Lloyds Banking Group, for example, trades at 6.1 times earnings and yields 5.42%. Mining giant Anglo American trades at 5.6 times earnings and yields 7.15%. Housebuilder Taylor Wimpey trades at 6.1 times earnings and yields 8.4%.
I’m not gloomy about October. The month is volatile but it’s also known as a ‘bear market killer’, as six of the last 17 downturns have ended in this month. Whether it crashes or soars, I won’t change my strategy. I think now is a great time to buy FTSE 100 shares with a long-term view, so that’s what I’m going to do.
