The FTSE 100 rose 3.8% in 2023. Add in the average 3.7% dividend yield and that would normally be a decent return, especially in such a challenging macroeconomic context.
However, this return pales into insignificance when compared with the S&P 500‘s 24.2% gain last year. In fact, this rise has pushed the US market to the brink of a new record high.
Again though, context is important here. The ‘Magnificent Seven’ group of tech stocks — Apple, Microsoft, Google parent Alphabet, Amazon, Nvidia, Meta Platforms and Tesla — drove the US market skywards.
If we strip out these seven mega-caps, the S&P 500’s other 493 stocks collectively returned 8% or so.
Europe’s main indexes also ended 2023 much higher, meaning it was a surprisingly good year for many investors. Looking forward though, things might be about to get a bit bumpier.
Potential upheaval and instability
I think the US election scheduled to be held in November will become a central theme for investors.
As I write, President Joe Biden and former president Donald Trump appear to be heading for an electoral rematch. If the vote was held tomorrow, Trump would win, according to the polls, though these things can change quickly.
One of Trump’s main policy goals is to introduce a 10% tariff on goods imported to the US from all countries.
Needless to say, this wouldn’t be positive for those FTSE 100 firms that sell a lot of stuff in the US. The prospect of further global trade wars would likely create a lot of uncertainty and therefore market volatility.
According to Allianz Research, this year is “set to be one of significant political upheaval and economic instability…such uncertainty could act as a negative supply shock, potentially raising prices and curtailing output, investment and consumption.”
Cassandras who are believed
While that sounds worrying, it’s important to remember that nobody ultimately knows whether FTSE 100 stocks will crash in 2024.
What we do know is that stocks rise more often than they fall over the long term The numbers tell us so.
Since its creation in 1984, the FTSE 100 has risen in 28 years and fallen in just 11. That means it has gone up around 71% of the time. Interestingly, the S&P 500 has also delivered positive annual gains roughly 70% of the time in its 66-year history.
Therefore, stock market crashes are statistically rare events. Yet there’s always some financial Cassandra, somewhere, predicting a huge market meltdown. Unlike in Greek mythology, though, these talking heads are often wrong but believed.
My simple approach
For me, the solution is pretty clear and based on simple logic. If the market goes up more than it goes down, then I’m better off not wasting my time trying to second-guess it.
The most optimal strategy for me is just to stay invested at all times, knowing the maths is on my side.
But if the market does crash this year, then I’ll be taking advantage of lower share prices and higher dividend yields.
