While the FTSE 100 had been hovering around the 7,000 point level since the middle of October, December has started off what could turn out to be one of its worst Christmas periods on record.
As I write, the index of the UK’s biggest companies has plunged below 6,800 points, having crunched through a 52-week low of 6,673.6 points.
At the beginning of the year, I would have guessed an end-of-2018 figure of somewhere between 7,500 and 8,000 points. As it is coming to the end of a tough five-year period, with Brexit looking very uncertain even as the year started, the Footsie still looked like it was set for a few more years of weakness to me.
Solid underpinning
But with top share prices appearing increasingly oversold and the FTSE 100’s forward dividend yield steadily rising — it’s now looking close to 4.8% — I thought the index was essentially solid and I really didn’t expect further significant declines.
But as our Brexit strategy moves from uncertainty through incompetence, to farce, I’m now starting to doubt that the FTSE 100 will even manage to keep its head above 6,500 points by the end of the year.
In fact, my Fool colleague Royston Wild has even suggested our top index could struggle to hang on to 6,000 points, pointing largely to global issues as leading the drive downwards.
Weakening oil?
One of the biggest uncertainties surely stems from the retrenchment of the oil price since it reached a high of more than $85 in early October. For nearly a month now, it’s been hovering at around the $60 level — and at that price, a number of oil firms will be feeling the pinch.
It’s sobering to think, as Royston points out, that BP and Royal Dutch Shell between them account for 17%-18% of the total market capitalisation of the whole FTSE 100. And the bulk of that is Shell, at around 1.9 times the size of BP.
Dividends too
What’s more, Shell makes a disproportionate contribution to the FTSE 100’s dividend returns too. According to the Q3 Dividend Dashboard from AJ Bell, Shell is set to contribute 13.2% of the total forecast FTSE 100 dividend payment for 2018, with BP in third place with 6.9%.
So a renewed oil price crisis would threaten a full 20% of the Footsie’s forecast dividends — and that will surely be on the minds of big investors.
But clearly, the biggest threat to UK business next year is Brexit. The vote on the deal with the EU has been postponed until January now, as there’s apparently little chance of its being accepted in its current form. And though the Prime Minister now says she’s expecting new assurances from the EU, to the rest of us it seems she’s being met with a frosty “Non!“
And preparations for a no-deal Brexit are being ramped up.
Mustn’t grumble
But all this gloom and doom could turn out to be good for investors. And in my expectation of being a net investor in 2019, my response to it is to keep re-examining my stocks shortlist and updating what I see as more and more attractive reasons to buy.
And it’s top FTSE 100 dividend stocks for me all the way, as I’ve been refining my searches. A FTSE below 6,000 heading into 2019? Yes please!