Where next for the FTSE 100 after it sinks 9% in six months?

Could further falls be ahead for the FTSE 100 (INDEXFTSE:UKX)?

FTSE 100
FTSE 100

Six months ago, the FTSE 100 (INDEXFTSE:UKX) was riding high at around 7,700 points. It had recently reached an all-time high, and the prospects for the index appeared to be relatively upbeat. Many investors were focused on growth and returns, rather than risks and potential losses.

Fast-forward to today and the situation is markedly different. The index has lost 9% of its value and investors seem to be increasingly cautious about the outlook for the stock market.

In my opinion, volatility could remain high in the near term. Some of the catalysts for the index’s fall are still present to my mind. For instance, US interest rates are expected to increase multiple times over the next year. Investors may therefore become increasingly fearful about increased difficulties in servicing debt at a time when leverage across the developing and developed world is high.

Similarly, tariffs remain a threat. Although they have not been the dominant headline of late, the IMF estimates that the tariffs already announced could reduce global GDP by 50 basis points by 2020. And with the potential for further tariffs, investors may become increasingly risk-off.

Brexit may also have an impact on the FTSE 100’s price level. On the one hand, it could cause UK-focused shares to become less popular as investors factor in a period of possible disruption. But on the other hand, a weaker pound may lift the profitability of FTSE 100 shares which operate internationally but report in sterling.

In the long run, I think that the FTSE 100 could offer good value for money at the moment. It has a dividend yield of 4.25%, and I believe a number of its members may offer margins of safety. In the short run, there could be volatility. But for a long-term investor like me, periods of volatility are not unusual and could even create opportunities to benefit in the long run.

About Robert Stephens 5151 Articles
Robert Stephens is a CFA Charterholder and an Equity Analyst by trade. He is a passionate private investor who has been buying and selling shares for many years, owning a wide range of UK shares in the process. He has written for Citywire and The Motley Fool US and now runs his own business. To contact Robert, please email [email protected] or use one of the other contact methods available on the 'Contact Us' page