The FTSE 250 just dipped into bear market territory

Originally posted on March 10th.

For obvious reasons, markets were volatile this week and many UK stocks saw their share price absolutely crater.

To be frank, it was pretty shocking.

The FTSE 100 held up well and was only down about 9% from its recent high, mostly thanks to its large exposure to defence, mining, utilities and international stocks.

The more UK-focused FTSE 250 didn’t fare so well and officially entered bear market territory this week, having fallen slightly more than 20% from its recent all-time high.

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The S&P 500’s CAPE ratio says the US is still expensive

In this article I look at the S&P 500’s response to the coronavirus pandemic, the impact on CAPE valuations and what that means for the index’s expected ten-year returns.

The world is in the grip of a rapidly expanding pandemic and countries around the world have shut down large parts of their economies and told citizens not to go outside.

The International Monetary Fund (IMF) now expects a global recession far worse than the one that followed the financial crisis and worse than any since the great depression.

Companies left, right and centre are suspending dividends and reporting revenue declines of more than 80%.

And yet despite the obvious damage being done to the global economy, the S&P 500 is not even in bear market territory.

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A few thoughts on coronavirus and the recent stock market crash

Unless you are a hermit living in a very remote cave, I’m sure you’re aware of the coronavirus pandemic.

And if you have any interest in investing, then you also probably know that stock markets around the globe have suffered what can only be described as a stock market crash.

Crash is a strong word, but with the FTSE 100 falling 26% (from 7,500 to 5,500) in less than a month it’s hard to call it anything else.

Technically speaking we are now in a bear market, which is somewhat arbitrarily defined as a decline of more than 20% from recent highs.

What does this mean for investors? Should we sell now and hide under a rock, or is there some alternative?

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FTSE 250 CAPE valuation and long-term forecast

FTSE 250 Cape chart

Mean reversion of market valuations will be one of the primary headwinds or tailwinds affecting your portfolio over the long term. In this article I look at the FTSE 250’s cyclically adjusted PE ratio (CAPE), and whether it’s likely to help or hinder your portfolio over the coming decade.

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Woodford’s closure, FTSE 100 valuations and The Property Chronicle

Unfortunately for his investors, Neil Woodford’s flagship fund is to be closed in the new year.

(Update: The entire Woodford empire is now closing down)

This is obviously terrible news as a lot of people could lose a lot of money.

I don’t want to trivialise this by jumping on the news-cycle bandwagon, although I guess that’s how this is going to look.

I saw a lot of “lessons from Woodford” articles across my news feed this morning, so I though I would apply the Tesco philosophy of “every little helps”, and re-publish an article I wrote a few weeks ago.

I wrote it for a new magazine called The Property Chronicle, published by those nice people at Harriman House (who also, not entirely uncoincidentally, publish my book).

Reading back through the article, I think two lessons are paramount (one of which I forgot to mention):

  1. Don’t borrow short and lend long (or in this case, don’t invest cash into assets that could take months to sell if you might need the cash back at short notice)
  2. Diversify, diversify, diversify (even if that means holding several funds which are themselves diversified)
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FTSE 100 and FTSE 250 mid-year valuations

We’re about halfway through 2019, so now is a good time to stop, smell the roses and see how attractively valued (or not) the FTSE 100 and FTSE 250 are.

I’ll be estimating fair value for these indices using their dividend yields and CAPE ratios (Cyclically Adjusted PE), because I think the standard PE ratio is basically useless as a valuation too.

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FTSE 100 dividend-based valuation and forecast for 2019

For most UK stock market investors, 2018 was not a year to celebrate.

The FTSE 100 fell by 12% from 7,648 to 6,734, which left the large-cap index at levels first reached almost 20 years ago in 1999.

The FTSE 250 faired even worse, suffering a 15% decline from 20,681 to 17,587.

On top of that, we’ve had a seemingly endless stream of fear-based highly negative ‘news’ from the financial and mainstream media. Most of this relates, of course, to the various dystopian futures which were may or may not be subjected to if Brexit ever actually takes place.

In such a negative environment, is there any positive news we can cling to, if only to maintain our sanity?

I think there is, and it’s this:

According to the dividend discount model, the FTSE 100 could be trading far below its intrinsic value

If that sounds like a load of gobbledegook, please allow me to explain.

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UK stock market valuation and long-term forecast

Is the UK stock market cheap or expensive compared to historic norms? And are its returns over the next decade or so likely to be good, bad or ugly?

To find out, I’m going to look at the current valuation of both the FTSE 100 and FTSE 250. After that, I’ll wrap things up with a long-term forecast for both indices.

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Why UK property prices could stay flat for 20 years

Average property prices in the UK are at historic highs and this is not good news for future house price gains.

Why? The short answer is that trees don’t grow to the sky. The longer answer is a bit more complicated but very interesting.

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Why the UK bull market could have a long way to go

Who’s right about the UK stock market?

  • Is it the bulls, who think the UK market is attractively valued and could easily double if investors fall in love with stocks again?
  • Or is it the bears, who see the FTSE 100 at record highs and a near-decade-old bull market which must be well into old age by now?
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FTSE 250 Valuation and forecast for 2018 and beyond

Over the last 20 years, the performance gap between the FTSE 250 and FTSE 100 has been enormous.

While the FTSE 100 has spent most of the last 20 years failing to beat its dot-com peak, the FTSE 250 has raced ahead. In fact, it’s now almost three times higher than it was during the tech bubble.

So what does that say about the FTSE 250’s valuation today? Is the FTSE 250 in some kind of runaway bubble fuelled by quantitative easing and super-low interest rates?

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FTSE 100 Valuation and forecast for 2018 and beyond

2017 is drawing to a close, so once again it’s time for my semi-regular UK stock market review.

In this case, I’ll be looking at the FTSE 100’s current valuation and making a fact-based forecast for 2018. I’ll also use that same approach to make a forecast for the next decade.

In my opinion, the FTSE 100’s valuation is more important than any forecast, so let’s have a look at valuation first.

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S&P 500 valuation and projection: 2017 Q2

In this post, I’m going to do a valuation and projection for the S&P 500 using Robert Shiller’s CAPE ratio.

I think this is worth doing on a regular basis because it gives you a good idea of where a particular market is in its valuation cycle and what sort of returns it’s reasonable to expect over the next few years.

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FTSE 250 forecast for 2017: An expected decline of 8%

Today the FTSE 250 stands about 50% above its pre-financial crisis highs and more than 200% above its post-crisis lows.

Those are impressive gains, but has it left the mid-cap market overvalued? I think it has, and the implications for expected future returns are not good.

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