In August, the stock market was heading upwards. The FTSE 100 had broken through 7,500 points again. And optimists hoped that, maybe, we could finally be in for a bull run. We might even see 8,000 points or more.
But the market is heading down again in September. Might it even crash below 7,000 before the month is out? I think it could, and here are three of my reasons.
Oil
The oil price is falling. It’s not much comfort to people struggling with big energy bills yet. But it’s fallen below $90 per barrel, the cheapest for nine months. Why does that make a difference?
Well, Shell and BP are among the few FTSE 100 companies booming right now. They’re big too. Shell is the biggest in the whole index with a market cap of £165bn. BP is sixth at £85bn.
Both of those stocks have climbed in 2022, by around 50%-55%. If they turn downwards, the FTSE 100 should decline on that alone.
There’s been talk of a possible windfall tax in the UK to pay towards reducing our energy bills as winter approaches. So far, new prime minister Liz Truss has rejected that possibility. But it’s the kind of thing that could hit oil and gas shares.
Dividends
Going by forecasts, 2022 is coming very close to the record year of 2018 for total FTSE 100 dividend payments. But if dividends should falter, could that add another straw to the camel’s back?
We have had cuts already. Mostly they’ve been from mining stocks, like Rio Tinto. Rio’s interim dividend was sliced by 29%, as demand from China has been weakening. The mining giant did, however, point out that it was still its second biggest interim dividend ever.
I suspect investors might be looking nervously at housebuilders too. So far, first-half results have been healthy. So maybe the sector is fine. But any negativity from Redrow on 14 September might worry the market.
We have a lot more results due in September, and I’ll be watching for dividend news.
Recession
The Bank of England admitted this week that it’s powerless to prevent recession — though I’m not sure why anyone would have thought otherwise. The snippet of non-news nevertheless shook the financial world and sent the pound downwards.
I don’t see any real difference between a technical recession and not a recession, at least as far as company performance goes. Economies simply don’t keep growing smoothly and steadily. No, we have good years of economic growth, with the occasional year of shrinkage.
That’s all natural and expected, and long-term investors have largely learned to ignore it. But it still spooks those watching daily market movements.
Crash?
Will any of these things help tip us into a stock market crash? They really shouldn’t do that. And I doubt any individual event will make much difference. But taken together, there has to be a chance of tipping investors into a bearish mood and sending the FTSE 100 down.
If we do see a new market slump, it will only mean one thing to me. More cheap shares to buy, for longer.