The FTSE 100 is now just another dip away from breaching the 6000 limit. That is quite a collapse, given that just a few weeks ago it looked ready to burst through 7000.
This wasn’t completely unexpected. Analysts have been warning of a setback for months, as the global wall of worry looked increasingly insurmountable.
Slowing China, dying Europe, the warring Middle East, menacing Russia and monetary tightening have cast a long shadow over markets for most of this year.
Now the ebola crisis has topped up the fear factor.
Stock markets rattled happily upwards, banking on the US fiscal cavalry to save the day. But instead, the US Federal Reserve continued to taper.
All it took was one small fall in US retail sales for panic to set in. The question is now where it will end.
Black October
At time of writing, the FTSE 100 stands at 6100, down just over 11% from its 52-week high of 6878, achieved as recently as early September. October strikes again.
Some analysts claim that 5000 is a natural floor for the FTSE 100. There is still a long way to go before we hit that, and I suspect central bankers will feel obliged to act before then, possibly with more QE.
That’s what the few buyers in today’s market are banking on.
Never Waste A Crisis
The only sensible way to tackle this market is to take advantage of the dips, to load up on your favourite stocks at the new, low price. If you sell instead, you are only banking your losses.
I’ll be buying another piece of the market to take advantage of today’s falls, by popping a bit more money into a FTSE 100 tracker.
The index now trades at an undemanding 12.53 times earnings and yields 3.74%, which thrashes the return on cash.
If it falls further, I’ll buy more.
Bargains Going Cheap
Plenty of big name stocks are now on sale at discounted prices. Embattled supermarket giant Tesco is 50% cheaper than it was one year ago.
Pharmaceutical giant GlaxoSmithKline is down 15% and now offers a thumping dividend yield of 5.98%.
British Gas owner Centrica now yields 5.99% after falling 20% in the year.
Barclays is down more than 25% over the year, while mining giant BHP Billiton is off nearly 20% in the last three months alone.
If you buy these solid businesses at today’s lower prices, all you have to do is be patient, re-invest that yield, and hang on for the ultimate recovery.
If their share prices fall further, you can always buy more.