The FTSE 100 is currently very unpredictable. Since the start of the week, the UK’s largest share index has seen its value fall, rise and fall again.
So, why is the FTSE 100 so volatile right now? And when will calm return to the stock market? Let’s take a look.
What has happened to the FTSE 100 recently?
The FTSE 100 has lost over 400 points since the start of the year. That’s a drop of more than 5.5%.
The FTSE 100’s first major fall of the year came on the morning of Monday 24 January, losing almost 200 points as soon as markets opened. At the time, the drop was blamed on investors fearing a possible war in Europe. Sadly, we now know that these fears were not misguided.
One month later, when Russian tanks officially entered Ukraine, the FTSE 100 tumbled further. On 24 February, the share index shed almost 300 points – its biggest fall of the year.
With the war in Eastern Europe ongoing, the FTSE 100 has continued its volatile performance over the past two weeks. Between 2 March and 4 March, the index lost over 400 points.
On Monday, it officially hit a year-low of 6,959. By Wednesday, however, the FTSE 100 had risen to 7,190, giving investors hope of a quick recovery. However, the index has since shed another 100 points or so.
What’s behind the FTSE 100’s volatile performance?
Recent falls in the value of the FTSE 100 can be largely attributed to current events in Ukraine.
For example, two current members of the FTSE 100, Evraz and Polymetal International – both of which have interests in Ukraine and Russia – have seen their respective share prices plummet since the Russian invasion began. Both companies are set to be removed from the index later this month.
Yet, even FTSE 100 members with no direct interest in Ukraine or Russia are likely to feel the effects of the current conflict. This is because of the knock-on impact war can have on the wider UK economy. For example, higher commodity prices – which are already taking effect – can have a detrimental impact on the disposable income of the average consumer.
On a similar note, higher commodity prices can add to economic uncertainty, making businesses reluctant to invest.
Of course, it isn’t solely war that is impacting the stock market right now. The UK was already grappling with high inflation prior to the start of the war. As a result, many investors expect higher interest rates to be just around the corner. Rate rises can have a detrimental impact on share prices due to higher borrowing costs for businesses.
Yet despite this negativity, some investors take a more optimistic view of the future. Meanwhile, other investors may simply try to capitalise on recent falls in order to pick up ‘bargain’ stocks. Such actions can send the stock market rising. This is partly the reason why the FTSE 100 hasn’t only headed downwards over the past few weeks.
When will calm return to the stock market?
Due to the ongoing Ukraine crisis, the FTSE 100 is likely to remain volatile in the near future. Only when the war ends or, at the very least, begins to de-escalate, will we likely see the stock market enter calmer waters.
Yet, as the war isn’t the only factor that is impacting the FTSE 100 right now, even if it does end, there’s no guarantee the market’s volatile performance will immediately subside.
On this note, if you’re worried about your wealth during these uncertain times, it’s a good idea to check your portfolio aligns with your personal appetite for risk. To do this you may wish to take The Motley Fool’s investment style quiz.
How can investors profit from the volatile FTSE 100?
With the FTSE 100 performing like a roller coaster in recent weeks, it may be tempting to ‘buy the dips’ and expect stocks to recover quickly from any falls.
Yet before you consider this approach, always be mindful that past performance shouldn’t be used as an indicator of future returns. Remember that the stock market is unpredictable by nature. If it wasn’t, we’d all be millionaires!
To put it another way, while buying stocks in a volatile market can deliver high returns, it can also lead to big losses. If you choose to invest this way, don’t invest more than you can afford to lose.
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