A wise person once said we should invest in the FTSE 100 when things look like they can’t get any worse. In early 2022, inflation was climbing, fuel costs were soaring, and interest rate rises were on the cards. And we were all catching the latest Covid-19 variant.
So a perfect time to buy when things couldn’t get any worse? Oh, then Vladimir Putin decided to invade Ukraine. But I do think now is one of the best times to invest in FTSE 100 shares I’ve ever seen, and it’s for a number of reasons.
Not-so-busted banks
The FTSE 100 banking sector is often a key indicator of the stock market as a whole. If companies suffer, the banks providing the financial services suffer too. And the UK’s banks have been through one of their toughest patches ever, at least since the onset of the financial crisis. Then we had Brexit, Covid-19, very low interest rates, war… it’s been horrible.
But I think we now have a more resilient banking sector than we’ve seen in decades. Balance sheets are strong, profits are recovering, and dividends are growing nicely. Lloyds provided a 4.1% dividend yield in 2021, while Barclays managed 3.2%, and HSBC paid 4.1%. And that’s before interest rates started rising again, which should help boost bank profits further.
I also see banks bouncing back strongly after any short-term setback, and that brings me to my second point.
FTSE 100 sentiment
There seems to be very little downside left in investor sentiment these days. After share prices, especially bank ones, took a hit at the start of the Ukraine war, they quickly recovered. The FTSE 100 is still up close to 12% over the past 12 months.
It’s as if there was an automatic sell response when the Russian tanks started rolling. But then investors stopped and thought “Hang on, no, these shares are already way too cheap“.
And maybe the big investments firms realised that the Covid-19 sell-off was overdone, and they’re not getting suckered into another rout. Those who followed the Motley Fool approach and carried on buying throughout the crash should be smiling today.
Cheap shares
The FTSE 100 might have gained over the past year. But at 7,500 points at the time of writing, it still hasn’t really moved in five years. The resulting depressed share prices mean we have some bumper dividends to look forward to this year.
Mining giant Rio Tinto is on a forecast dividend yield of more than 10%. Housebuilder Persimmon is up there on a 10% estimate too. Then we have the out-of-favour tobacco companies, with Imperial Brands expected to deliver better than 8%. Those are seriously tasty dividends.
FTSE 100 risk
But there is still that war. And behind that, the world was already facing rising inflation and increasing supply chain problems as we try to head away from the pandemic. So we see people with less money to spend, and international trade facing hurdles. And that’s even without any further escalation in international trade conflicts.
Still, will things really get any worse? I reckon it’s a great time to buy FTSE 100 shares.