Since reaching its lowest point in the March 2020 stock market crash, the FTSE 100 has risen by around 30%. The index has benefitted from factors such as the rollout of vaccines, increasing investor optimism and the growth opportunities. Combined, they’ve positively impacted some, but by no means all, industries.
Looking ahead, does the stock market now face a period of decline after a rapid rise? Or are there still buying opportunities on offer for long-term investors?
The potential for a FTSE 100 stock market crash
The 2020 stock market crash showed that a major decline for the FTSE 100 can occur at any time without prior warning. With the benefit of hindsight it’s now possible to reason why shares fell so heavily in such a short space of time. But with them declining by around a third in a matter of weeks, predicting such an event in real-time is extremely challenging.
Moreover, just because the stock market has risen sharply doesn’t mean a decline is imminent. For example, in the years leading up to the 2020 market decline, talk of a correction or a crash had been fairly widespread.
After all, it was over a decade since the previous global bear market in the 2009 global financial crisis. However, it took a global economic crash following more years of growth until a market decline took place.
Investing in UK shares for the long run
Since it’s extremely challenging to predict when a stock market crash will occur, it seems prudent to accept that share prices could move sharply higher or lower in the coming months. Factors such as investor sentiment, the course the pandemic will take and many other risks could yet have a negative impact on stock prices. However, other positive factors may well help to lift share prices.
But, over the long run, the FTSE 100 has produced strong returns relative to other mainstream assets such as cash and bonds. For example, since its inception in 1984 it has delivered an annual total return of around 8%.
Of course, there’s no guarantee that a similar return, or any return, will be produced by the index in the coming years. But history does suggest that a long-term view can help to overcome short-term challenges in the stock market’s progress.
With many FTSE 100 stocks continuing to trade at lower prices than they did before the 2020 stock market crash, there may be buying opportunities now. Sectors such as financial services, travel and defence have not yet recovered from their declines. They, and other, industries could offer long-term turnaround potential that helps to catalyse an investor’s portfolio.
There are likely to be difficulties, and even paper losses, ahead. But the long-term return potential from UK shares may prove to be relatively high.