Will we see a catastrophic stock market crash next week?
Whatever you may have read, the stock market didnât crash last week. Thereâs a strict definition of a crash, and the FTSE 100 didnât meet it.
It didnât even qualify as a correction, which means a 10% drop over a short period. A crash requires a fall of 20% or more. In the last five trading days, the UKâs blue-chip index slipped 5.74%, largely caused by the war in Iran. So weâre nowhere near a crash yet.
That doesnât mean we wonât get there. Given the uncertainty, markets could have a lot further to fall. So what should investors do?
FTSE 100 uncertainty
At The Motley Fool we have a tried and tested approach to moments like this. Donât panic. Donât try to second-guess the market. And above all, donât sell. That only turns a paper loss into a real one.
Instead, sit tight and keep calm. If thereâs spare cash available, consider using it to buy strong companies whose share prices have temporarily fallen. That takes courage, of course. Itâs not easy to keep a cool head when the headlines are screaming about war. But history shows that even outright crashes donât last forever.
At some point the panic subsides, bargain hunters move in, and shares resume their long-term upward trend. Short-term market volatility is the price investors pay for the superior long-term returns from equities.
There are exceptions. If someone needs their money soon, say for a house deposit, it probably shouldnât be in shares in the first place. Ideally, investors should only commit money they wonât need for at least five years, and preferably much longer. With that in mind, opportunities are already emerging.
While the FTSE 100 itself has only dipped modestly, many individual stocks have fallen much further. British Airways owner International Consolidated Airlines Group, housebuilders Persimmon (LSE: PSN) and Barratt Redrow, consumer goods giant Reckitt and engineer Weir Group all dropped around 14% last week. Precious metals miner Fresnillo fell 17%, finally breaking its strong run. They’re firmly into correction territory.
Persimmon shares plunge
Many of them issued news or results last week, so the Iran war isn’t exclusively to blame. Persimmon didn’t though. Housebuilders often struggle in uncertain times. Consumer confidence falls and people become reluctant to make big purchases like homes.
This time, thereâs interest rate risk. If rising oil prices push inflation higher, the Bank of England may delay cutting rates, or even increase them. Higher mortgage costs would squeeze housing demand.
However, Persimmon now looks reasonably valued, trading on a price-to-earnings ratio of about 14.3. The dip has also pushed the trailing dividend yield up to 4.6%. There are risks, of course. Housebuilders have struggled since Brexit in 2016. Persimmon shares are up 12% over the past year, but down a painful 55% over five.
If the conflict drags on and borrowing costs stay high, sales and profits could come under pressure. Even so, for patient investors with a long-term view, I think Persimmon is worth considering.
As for whether we get a full-blown crash next week, nobody knows. But if markets fall further, Iâll be watching stocks like these closely. I can see plenty more FTSE 100 bargains out there today
The post Will we see a catastrophic stock market crash next week? appeared first on The Motley Fool UK.
Should you invest £1,000 in Persimmon Plc right now?
When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.
And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Persimmon Plc made the list?
More reading
- As the FTSE 100 nears 11,000, these top shares are still dirt cheap!
- How much do you need in an ISA for a £3,333 monthly passive income?
- Can these 2 fast-recovering FTSE 100 turnaround stocks do it again in March?
- Will these FTSE 100 shares soar in 2026 on these good omens?
- Down 50% but recovering fast: is this 4.3%-yielding UK stock a once-in-a-decade opportunity?
Harvey Jones has positions in International Consolidated Airlines Group. The Motley Fool UK has recommended Barratt Redrow, Fresnillo Plc, Persimmon Plc, Reckitt Benckiser Group Plc, and Weir Group Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
