3 reasons why the FTSE 100 index is falling now

The FTSE 100 index had a promising start to the week. On Monday, it closed above the 7,000 mark, for the second consecutive trading session. 

The week for FTSE 100

The high was short-lived though. By the close of Tuesday, it had fallen a whole 2%. This was the biggest daily fall since late February and the only the second time in 2021 so far that it had a 2% or bigger fall. 

The index level dropped to 6,859. It did not regain 7,000+ levels at any time during the week after that. While it managed to claw back up during the rest of the week, the FTSE 100 index is down as the week wraps up this Friday, as well.

As I write, it is down by 0.5% from yesterday’s close. Since it is already Friday afternoon now, I doubt if it will recover substantially (or at all) by the time of closing. 

On average, this would mean a 0.4% fall from the week before. 

Dragged down by poor updates, coronavirus, and taxes

A bunch of reasons came together to drag the FTSE 100 index down. 

There was a spate of weak updates among the index’s constituent companies, starting with the conglomerate Associated British Foods. The company’s financials took a beating as its biggest revenue generator Primark was closed during the lockdown. Mining biggies like BHP and Rio Tinto also posted soft production updates, which can tell on their earnings.

FTSE 100 aviation giant International Consolidated Airlines Group, which owns British Airways, has also been a loser this week. So was the engineering giant Rolls-Royce. These stocks were impacted by new coronavirus restrictions, as the Indian variant resulted in the country’s addition to the UK’s travel red list. 

The index is also likely to have reacted to the news of higher capital gains’ taxes possible in the US, as governments run-up debt levels not seen since the second world war. The report is thought to have spooked the US markets on Thursday. 

Why I’m confident about the FTSE 100 rally

I would not make too much of this week’s occurrences, however, at least not for now. From a longer-term perspective, the FTSE 100 is still rallying. In fact, going by some of the macro-economic numbers that came out today, I am of the view that it can continue to rally for a while now. 

Despite the lockdown, retail sales were up in March. Consumer confidence, which tells us how much we are willing to spend, is also improving. And the Purchasing Managers’ Index, a gauge of business activity, just touched multi-year highs. I think it is only a matter of time before these trends start showing up in companies’ financials too. 

Further, at least for the next week, I think we could see positive news. FTSE 100 biggies like BP and Royal Dutch Shell are expected to report updates, which will likely be positive as the overall environment improves. 

I am also hopeful of results from mining biggie Evraz and pharmaceuticals giant AstraZeneca. 

So I will not make any changes to my investing strategy, at least for now.