Is this the start of the next stock market crash?

A few days ago investors celebrated FTSE 100 reached an all-time high, now they are worried about a stock market crash. It’s quite the opposite but not strange. Here are the highs and lows of equity investing.

The FTSE 100 has fallen 1.16% today, largely in response to Tuesday’s Wall Street sell-off. At S&P 500 USA index fell 2% yesterday, the worst performance in two months.

apprehensive? No, I bought shares

Investors in the pool are worried that interest rates will have to remain on hold for longer, as inflation is stickier than the US Federal Reserve expects.

The FTSE 100 suffered further damage after the mining giant Rio Tinto announced a 38% drop in profits, and slashed (very generous) dividends by more than half. Rio’s share price is down 2.77% as I write this.

Lloyds Banking Group has dropped 2.08% after reporting flat profits in 2022. Although at £ 6.93 billion they are still enough juice to trigger renewed calls for a windfall tax on ‘excessive profits’ in the banking sector.

Given that Lloyds also raised its dividend by 20% from 2p to 2.4p and announced a £2bn share buyback, I think the sell-off is overdone.

The sharp shift in sentiment has sent the FTSE 100 back below 8,000. I am not surprised. Markets never go up in a straight line. After a good run for months, a setback was inevitable.

Despite this week’s slippage, the FTSE 100 is still up 4.48% year-to-date and the S&P 500 is up 4.53%.

Investors have run ahead as they jostled to take advantage of the Fed’s long-awaited interest rate ‘pivot’. Now they have some much-needed realism.

Will the market go down again? Yes, if I believe Michael Wilson, head of US equity strategy at Morgan Stanley. He thinks the market has entered “dead zone”a term used by mountaineers when they climb so high that it becomes difficult to breathe.

Wilson reckons we’re there now, and the S&P 500 could drop to 3,000 in a few months, down 26% from current levels.

I don’t fear the FTSE 100 crash

While the FTSE 100 has outperformed the US over the past year or so, in a doomsday scenario it would almost certainly crash.

I thought I should be worried, but I’m not. First, there were some analysts who predicted a market crash, and Wilson was a famous bear. Also, over the years I’ve learned to see stock market crashes as buying opportunities rather than threats.

Last October, when the index was below 7,000, I went into FTSE 100 shopping, and have enjoyed the subsequent rally. I wouldn’t think of another opportunity like that, especially since I’ve already built up some cash.

Also, I suspect that if the stock falls, this will be the last round of the downtown that starts in 2022. Things could look brighter and faster.

But who knows? I don’t. Michael Wilson didn’t. The stock market is very unpredictable, except in one respect. Over longer periods of time, history shows that investors are richer if they can hold out and resist the temptation to panic sell when things get a little shaky. It was the last thing I would do, despite the dire warnings.