It’s been a tough start to the year for investors but the sell-off doesn’t qualify as a stock market crash. Far from it. The FTSE 100 may have fallen 3.65% year-to-date, which hurts, but it’s hardly the end of the world.
All it’s done is take us back to 29 November, when the index closed at around 7,423.60, roughly today’s level. Basically, it’s wiped out the ‘Santa Rally’. That’s a shame, but investing is a long-term commitment and a short-term dip like this is nothing to worry about.
A disappointing start to 2024 was always likely, given the wave of exuberance in December. Investors got a little too excited by news that inflation was on the run, and started plotting a mighty six interest rate cuts by the US Federal Reserve in the year ahead.
A tough start to the year
That looks optimistic today as inflation proves sticky. Yesterday’s FTSE 100 drop of 1.5%, the biggest single-day loss in five months, was triggered by news that UK inflation actually crept up in December, from 3.9% to 4%.
After two big drops in November and October, this was a disappointment. However, it may also be a blip, triggered by one-off factors such as rising airfares and the increase in tobacco duty.
Inflation may jump again when January’s figure is published next month, as this will reflect the increase in the energy price cap. Yet analysts are expecting great things in April, when last year’s energy cap spike falls out of the annual figures. Some reckon inflation will fall below the Bank of England target of 2%. If that happens, sentiment will be very different.
As ever, there are no guarantees. If Red Sea attacks continue and shipping is diverted, inflation could start heading upwards again.
Top shares are on sale
The only thing I know for certain is that my favourite FTSE 100 stocks are suddenly cheaper than they were at the start of the year. That means I can buy exactly the same companies for less money. Take housebuilder Barratt Developments as an example. Yesterday, its share price fell 3.35%. Over one week, it’s down 6.11%. Basically, it’s on sale.
It’s a similar story for other housebuilders. They’re expected to benefit when interest rates fall, which will drive down mortgage costs and boost buyer sentiment. That happy day has been delayed, but it should arrive at some point. In the meantime, Barratt shares are cheaper, trading at 7.72 times earnings. They also yield slightly more at 6.44%.
This doesn’t look like value trap to me. The Barratt share price was bombing along until recent days. Over 12 months, it’s up 13.6%. We’ve been given a second chance to hop on board.
There are plenty of similarly cheap, high-yielding stocks on the FTSE 100, that look slightly better value today than a fortnight ago. I’m keen to buy all I can then sit back and wait for the next stock market rally. I don’t know when it will arrive, but I know we’ll get one in the end.
