The third quarter of 2014 was an eventful one for the FTSE 100, with the index falling by 1.8%. The Scottish referendum held shares back to a certain extent, with the uncertainty surrounding the future of the UK keeping many investors away from the index.
Furthermore, the situation in Ukraine remained tense and highly uncertain, while sanctions against Russia were stepped up and could prove to have a major impact on a number of global companies moving forward. In addition, air strikes commenced in Iraq and the situation there remains a potential worry to investors in Q4.
However, Q4 is set to see what could prove to be an even more impactful and uncertain event, which has the potential to push share prices even lower. As a result of this, Q4 could prove to be a tremendous buying opportunity for long-term investors.
For the last few years, the US economy has essentially been on ‘life support’ from the Federal Reserve. It has purchased $billions of assets each month, which has supported the US economy during a highly challenging period in its history. However, the programme is due to end this month and it could have a considerable effect on the FTSE 100’s price level.
That’s because in recent years many investors have adopted a ‘risk-on’ attitude for the simple reason that, if things in the wider economy worsen, the Fed will simply step in and do something about it. This attitude has enabled the S&P 500 to reach record highs and, it could be argued, has diverted attention away from the uncertainties that continue to exist in the US economy. These include a slow recovery in the jobs market and subdued demand for housing, given the ultra-loose monetary policy that has been pursued.
So, with the Fed’s monthly repurchase programme set to end, it would be of little surprise if the FTSE 100 pulled back somewhat during Q4. That’s not to say it will necessarily crash, but its end could force investors to rethink their stance and adopt a more pragmatic outlook moving forward.
This, then, could provide investors with a tremendous buying opportunity. While the S&P 500 has hit record highs in recent years, the FTSE 100 remains below where it was 14 years ago and, since then, earnings have grown considerably despite the credit crunch.
As a result, a relatively large number of high-quality stocks are trading at very attractive prices. A pullback could make them even more so, with Q4 having the potential, therefore, to be a superb time to add stocks to long-term portfolios.