The FTSE 100 defies the US stock market crash

Graph Falling Down in Front Of United Kingdom Flag

As I write late on Friday afternoon, it’s been yet another brutal week for global stock markets. After five weeks of falls, the S&P 500 index came within 0.1% of a full-blown stock market crash.

A whisker away from a US stock market crash

On Thursday, the main US stock index fell as low as 3,858.87 points, almost a fifth (-19.9%) down from its 3 January record high of 4,818.62 points. But the index then pulled back from the brink, avoiding the 20% drop that begins a full-on stock market crash.

For me, a 19.9% decline is so close to 20% that I’m calling a US stock market crash on Thursday afternoon. What’s 0.1%, right? But stock prices have since rebounded, pulling the market back from the brink. As I write, the S&P 500 has leapt back above the 4,000 level to trade at 4,005.26 points. That’s 146.39 points (3.8%) above yesterday’s intra-day low.

Meanwhile, the FTSE 100 stands firm

The past 12 to 18 months have been a great time to be an old-school value investor like me. As formerly go-go growth stocks collapsed (highly valued US tech stocks in particular), old-fashioned value stocks have surged — or held their value, at least. As a result, there has been nothing approaching a stock market crash here in the UK. As proof, here’s how the blue-chip FTSE 100 index has performed over six different periods:

Five days -0.2%
One month -2.4%
Year to date 0.2%
Six months 0.7%
One year 6.3%
Five years -0.9%

Looking at the above table, I see no signs of a stock market crash. To me, it seems that UK shares have been steady — though unexciting — during 2022. Furthermore, the Footsie is actually 6.3% ahead over the past year, excluding dividends. Adding in cash dividends of nearly 4% takes the index’s total yearly return to around 10%. This makes the FTSE 100 the best-performing major stock market index over the past 12 months. Yay!

The FTSE 100 still looks cheap to me

Since 31 December 2021, the S&P 500 index has lost close to a sixth (-15.7%) of its value, wiping out trillions of dollars of wealth. For me, this fall was well overdue, given how high stock valuations climbed during 2020/21’s trading frenzy. And with US interest rates heading upwards, I felt strongly that a stock market crash was coming this year.

Though US stocks have dived in value, I don’t see the S&P 500 as offering compelling value yet. However, I remain a big fan of the FTSE 100, which still looks too cheap to me. Likewise, I’m attracted to Footsie shares for their defensive properties — especially during this US stock market crash.

By my reckoning, the FTSE 100 trades on a price-to earnings ratio of around 11. This translates into an earnings yield of 9.1% a year. In comparison, the S&P 500 offers a trailing earnings yield of just 4.4%. Also, the Footsie’s dividend yield is around 4% a year — almost 2.7 times the 1.5% cash yield of the S&P 500. And that’s why I still favour buying cheap, high-yielding FTSE 100 shares over just about anything else!

The post The FTSE 100 defies the US stock market crash appeared first on The Motley Fool UK.

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