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Regardless of what you’ve read, the stock market didn’t crash last week. There is a strong definition of crash, and the FTSE 100 I didn’t come across it.
It didn’t even qualify for a correction, meaning a 10% drop in the short term. A crash requires a drop of 20% or more. In the last five trading days, the UK blue-chip index fell by 5.74%, mainly due to the war in Iran. So we are nowhere near danger.
That doesn’t mean we won’t get there. Given the uncertainty, markets may fall sharply. So what should investors do?
FTSE 100 uncertainty
In The Motley Fool We have a tried and tested method for times like this. Don’t be afraid. Don’t try to guess the market. And above all, don’t sell. That only turns paper losses into real ones.
Instead, stay strong and calm. If you have spare cash available, consider using it to buy strong companies whose stock prices have temporarily declined. That takes courage, of course. It is not easy to keep a cool head when the headlines are about war. But history shows that even a straight crash doesn’t last forever.
At some point the panic subsides, bargain hunters move in, and stocks resume their long-term gains. Short-term market volatility is the price investors pay for higher long-term returns from stocks.
There are exceptions. If someone needs their money soon, say a house deposit, it probably shouldn’t be in shares in the first place. Ideally, investors should make money they don’t need for at least five years, and preferably longer. With that in mind, opportunities are already emerging.
While the FTSE 100 itself dipped only modestly, many individual stocks did not fall significantly. Owner of British Airways International Consolidated Airlines Grouphouse builders Persimmon (LSE: PSN) and Barratt Redrowthe consumer goods giant Reckitt and engineers The Weir Group all are down about 14% in the past week. A precious metal miner Fresnillo down 17%, finally breaking its strong run. They are firmly in the zone of correction.
Persimmon shares are declining
Many of them released news or results last week, so the war in Iran is not the only case. Persimmon but he did not. Homebuilders often struggle in uncertain times. Consumer confidence is falling and people are reluctant to buy big things like houses.
In this case, there is interest rate risk. If rising oil prices increase inflation, the Bank of England may delay lowering rates, or raise them. Higher mortgage costs can suppress housing demand.
However, Persimmon now looks reasonably priced, trading at an estimated earnings multiple of 14.3. The company Dip also increased its annual yield to 4.6%. There are risks, of course. Housebuilders have struggled since Brexit in 2016. Persimmon shares have risen 12% in the past year, but are down a painful 55% over the past five.
If the conflict drags on and borrowing costs remain high, sales and profits can come under pressure. Still, for patient investors with a long-term view, I think Persimmon is worth considering.
As for whether we get the full crash next week, no one knows. But if the markets fall too much, I’ll be watching stocks like these closely. I can see a lot of FTSE 100 deals today
