It’s not been a good start to the day for the FTSE 100. After making back the losses from the mini-crash that happened exactly one month ago, it’s down 178 points (2.5%) so far today. This has meant that the index trades at 7,014 and is heading back towards the important barrier of 7,000 points. Given such a negative move already, here are the drivers that I’m seeing for it.
Souring risk sentiment
The main driver being pointed to is a change in risk sentiment over the past day or so. This is particularly with regards to the situation being seen in Afghanistan. The recalling of Parliament and the passionate PMQ’s yesterday highlighted the seriousness of the unfolding situation going on.
With the Taliban taking control of Kabul and the rushed evacuation, the FTSE 100 was teetering on the edge of having a wobble all week. This risk sentiment has finally soured, seeing investors sell out of stocks and head towards safer assets in the short term.
The sentiment has also turned due to the actions of the Government. Divisions within the Conservative party over the handling of the crisis have become public. Ultimately, a divided Government loses strength. This could be seen as another reason for the FTSE 100 falling today.
New Covid-19 problems
Another reason for the slump today is due to Covid-19. Over the past year, it has been characteristic for the market to sell-off with negative news regarding the pandemic. It appears today is no different.
Over the past couple of days we’ve had several pieces of news regarding the global situation. New Zealand has gone back into a national lockdown after it has recorded a fresh case. Australia has also tightened lockdown restrictions after New South Wales reported the worst day of the pandemic so far earlier this week.
Here in the UK, the story isn’t as bleak. However, numbers testing positive for Covid-19 over the past seven days have risen by 7.6%. Given the fact that the companies within the FTSE 100 are international in nature, it’s global developments that will influence the share price. Therefore, the issues seen in New Zealand and Australia can negatively impact the index, even though things in the UK aren’t currently as bad.
Should I buy the FTSE 100 dip?
If I rewind to a month ago, I was writing about a similar dip in the FTSE 100 that took place over the course of a few days. This turned out to be a dip that was bought up by investors, and led to the market moving back higher again. I think that it will be the same this time around too.
The issues causing the wobble today are definitely serious, but are both not enough of a catalyst to see a full-on market crash (in my opinion). Therefore, I’d look to buy some of the stocks I’ve had on my watch list at cheaper levels over the next week or so.
Don’t get me wrong, I think the market might continue to fall for today and tomorrow. Yet I don’t think this is a material shift in the bull market we’ve seen for the past year.