It was a lively and dramatic first quarter of 2022 for global investors. With worries mounting on several fronts, share prices dipped hard from January to early March, before bouncing back last month. As a result, most investors are probably relieved to get through the first three months of the year without sustaining sizeable losses. I’ll briefly set out the main trends of Q1/22, before explaining why I’ll keep buying shares for the foreseeable future.
Stock markets take a tumble
At its 52-week high, the UK’s FTSE 100 index peaked at 7,687.27 points on 10 February. Two weeks later, Russia invaded Ukraine and share prices swooned. At its 2022 low, the Footsie dived to 6,787.98 points on 7 March, down almost 900 points (-11.7%) from its 2022 high. This put the index in correction territory. But when investors started buying shares again, stock prices came roaring back. As a result, the FTSE 100 is actually up 2.1% in 2022. Yay.
It’s a similar story for the S&P 500 index. The main US stock index hit an all-time high of 4,818.62 points on 4 January. It then dived steeply, hitting its 2022 low of 4,114.65 points on 24 February, as war broke out. This left the index down over 700 points (-14.6%) from its peak — and heading for a bear market. But again, investors buying shares pushed the index back to 4,529.77 as I write, down just 4.9% in 2022. It could have been a lot worse.
Lastly, the tech-heavy Nasdaq Composite index nosedived after peaking in November 2021. At its all-time high on 22 November 2021, the index hit 16,212.23 points. At its 2022 low on 14 March, the tech index slumped to 12,555.35 points — down a whopping 3,656.88 points. Having fallen by more than fifth (-22.6%), this index was in a technical bear market/stock market crash. However, as investors started buying shares, it has since recovered much of this ground, but remains 8.7% down in 2022.
Why I’ll keep buying shares
One popular refrain I keep hearing from investors is: “buy the dip”. While I wouldn’t always follow this advice, buying shares during 2022’s price swings has proved very profitable. As I predicted last year, volatility rose, liquidity (the ease of buying and selling) fell, and spreads (the difference between buying and selling prices) increased in 2022. And yet there was still plenty of money to be made by buying into quality companies at fair prices.
There’s another powerful reason I’ll keep buying shares with my spare cash. Her name is TINA, which is short for There Is No Alternative. In this age of near-zero interest rates, I think I’d struggle to find a better home for my money than shares. Cash deposits are being rapidly eroded by red-hot inflation. Also, the US bond market has just recorded its weakest quarterly performance for perhaps 50 years. That’s because the US Federal Reserve has started raising its Fed Funds rate, which is expected to hit 2.5% within the next 12 months.
In short, when it comes to generating decent future returns, I’m backing cheap UK shares to be a long-term winner. That’s why I’ll keep buying shares in lowly rated FTSE 100 companies with strong earnings and high dividend yields!