What’s happening to the FTSE today?
Darren Lloyd Thomas of Thomas and Thomas Wealth Management outlines the key themes that are weighing on the FTSE 100 this week.
Many market analysts love to use the phrase ‘market correction’ to calmly describe a technical crash.
Crashes are a way of life for investment markets. The very nature of investing into business means we will always experience euphoric high points, grumpy low points and everything in between. Past market graphs prove without doubt that investing outperforms savings accounts over time. This is why we recommend a longer time period for investing – to see out those horrible drops when they arise.
It is still only sensible to want to understand what has caused this weeks ‘correction’. The reasons for the FTSE 100 fall to its lowest point in six months is based around FOUR key factors in my view:
- ONE – U.S. Equity markets have had a ball this year, buoyed up on great employment levels, tax breaks and domestic success. It was just a matter of time before the U.S. Central Bank (Federal Reserve) decided to ‘cool’ their economy by increasing interest rates. Increasing interest rates effectively ‘tightens’ the money supply – restricting the amount of money in an economy to try and slow down inflation and asset price rises. If central banks don’t ‘tighten’ – you end up with hyperinflation which no one wants. The problem with interest rate rises is that they hurt Equity Markets and they also hurt Bond Markets. There is no doubt that the recent FED rate rise has caused a large ripple of concern in Global markets.
- TWO – Staying with the U.S. theme, the Tariffs on Imports have clearly stunted growth in Emerging Markets such as China and India. We expect to see Emerging Markets struggle further in the coming weeks – especially if recent FED rate rises strengthen the US Dollar.
- THREE – The third issue this week is the fallout from Italy and Greece as they ‘negotiate’ with the EU over their debt repayments. The EU currency system once again shows its cracks and troubles Bond Markets and Equity Markets alike. This problem is likely to continue to resurface many times in the coming years – it is unfortunate that it has arisen this week with so many other issues occurring.
- FOUR – Finally, no missive would be complete without a nod to ‘Brexit’. Our clients have experienced large portfolio gains over the past 18 months as the UK Sterling fell. A falling Sterling helps UK Exporters (many of whom are FTSE 100 companies) to make larger profits. Conversely, a rising Sterling would be a headache for these same large companies. There is now a very real chance of a ‘soft’ Brexit deal which is pushing the pound back up. This may not be a bad thing in itself, but the immediate impact on the FTSE 100 and client portfolios has been negative this week.
In conclusion. I haven’t seen a week like this for a while. There are multiple factors at play that all lead to presenting a ‘good value’ market for new investors and a case for ‘holding’ on – for existing clients.
I am very confident that client portfolios will perform well over time but we do recognize this has been a worrying week for our clients who are following the news. I also just have a hunch that the media may start to zone in on market falls and I wanted to make sure we got in touch with you before this – to share our own current views.
As always, we are here for you 100%. Let us know if you need anything at all.
My best wishes as ever.