In the last month the FTSE 100 (INDEXFTSE:UKX) has declined from 7,033 points to 6,789 points at the time of writing. That may not sound like a significant fall, but it comes after a period of turbulence for the UK stock market which has seen it decline by over 1,000 points since May.
In my opinion, the near-term prospects for the index remain uncertain. Investors appear to be relatively cautious at the moment, and this could be a persistent trend over the next few months.
There seems to be significant uncertainty regarding the prospects for the world economy. Although further tariffs have been put on hold by the US and China over the short run, the prospect of further tariffs remains a real threat to global growth in my view. Protectionism can cause inefficiency and higher costs for consumers, and this may lead to reduced GDP growth forecasts over the long run.
Alongside this, there are still fears surrounding the US interest rate. It is expected to rise three or four times over the next year, and this may put strain on the growth rate of not only the US economy, but also emerging markets which have borrowed heavily in US dollars to fund their growth during a period of loose monetary policy.
The FTSE 100 may also have been impacted by fears surrounding the European and UK economies in my view. Although in the UK we mostly hear about the potential impact of a no-deal Brexit on the UK economy, it may prove to be disruptive for the EU, too. And with the Eurozone continuing to face an uncertain future in my view and it lacking strong fundamentals according to my research, I wouldn’t be surprised if it endures a challenging period over the near term.
All of these factors could mean that the FTSE 100 fails to deliver a ‘Santa Rally’ in 2018, and the start to 2019 may be relatively challenging in my view. However, for a long-term investor like me this could present buying opportunities. I’m particularly interested in the FTSE 250 at the moment, as well as UK-focused FTSE 100 stocks. I feel that in many cases they offer better long-term prospects than the stock market is pricing in, and could offer margins of safety.