The FTSE 100 is having a good year. But what about 2022?
The FTSE 100 The index had a pretty good run in 2021. The UK blue chip index is up 1% five-day, 4.5% one-month and 3.1% six-month. It also gained 11.7% this calendar year and nearly a quarter (+ 22.6%) over one year. But Footsie has had a bad half-decade, growing only 2.8% in the past five years. (All of these numbers exclude dividends, which are a big part of long-term UK stock returns.) But what could happen to the index in 2022?
The FTSE 100 is not going anywhere
It’s also worth noting that the FTSE 100 has barely budged this century. At the end of 1999, the Footsie reached a closing record of 6,930.2 points. As of this writing, it hovers around 7,215.99, for a gain of just over 285 points (+ 4.1%) in nearly 22 years. This corresponds to a really terrible return of less than 0.2% per annum (excluding dividends). So much for the benefits of long term investing. However, adding cash dividends of, say, 3.3% per annum brings that figure to 3.5% per annum. At least it’s better than nothing.
UK stocks look cheap to me
Today I would say the FTSE 100 looks far from expensive. The Footsie is trading about 15 times earnings and yields 6.7%. It also offers an expected dividend yield of around 4% for 2021. As the rest of the world continues to bubble in the market, these fundamentals look cheap to me. But compared to the US, the UK market is just a minnow – and that worries me.
Today, the total market value of all stocks listed in London (including the FTSE 100) exceeds £ 4.5 billion ($ 6.2 billion). But it’s tiny compared to the United States, where the total market value exceeds $ 46.4 billion (£ 33.8 billion), using the Dow Jones U.S. Total Stock Index. That’s more than double the value of US stocks during the Meltdown Monday lows (March 23, 2020). In fact, US stocks now make up about three-fifths (60%) of the FT Global Index, according to Philip Coggan writing in the Financial Time last month.
What future for Footsie?
An old stock market saying goes something like this, “When the New York market sneezes, London catches a cold”. Today the United States S&P 500 the index trades at 30.5 times earnings and a return on earnings of 3.3%. In addition, it offers a dividend yield of just 1.3% per year. Another time I clearly remember that US stocks were so valued, it was at the height of the boom of the 90s. And that was right before the dotcom crash started in March 2000. So when I got down to it. worried about the FTSE 100 and the London market at large, i am really worried about New York.
Although the fundamentals of the FTSE 100 look good to me, I still fear that the Footsie will have a disappointing 2022. Worries about “sticky” inflation, rising oil and gas prices, rising interest rates and slowing global growth could undermine investor optimism. Likewise, the high valuations of US stocks could trigger a real stock market crash next year. And if the US enters a bearish (falling) market, the UK will surely follow suit.
Finally, whatever happens in 2022, that won’t stop me from buying cheap stocks. Indeed, if another market collapse occurs, I will do exactly what I did in the spring of last year. I will spend every penny available to buy cheap stocks at newly discounted valuations. Being bold during periodic stock market crashes has increased my family’s wealth enormously, so I will keep my cool in 2022!
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