Why is the FTSE 100 stock market selling off this week?

Slowing global growth and the Fed considering withdrawing support have spooked FTSE 100 investors. But I am not rushing to change my portfolio.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Businessman looking at a red arrow crashing through the floor

Image source: Getty Images.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The FTSE 100 and other UK and global markets slumped yesterday. The UK’s main index is down about 2.5% overall this week. 

Why did the FTSE 100 crash this week?

On Wednesday it was reported that most US central bank officials are in favour of beginning to wind down its bond-buying program later this year. Central bank support is viewed as fuel for the stock markets. The US making plans to withdraw support might have spooked investors across the globe on Thursday. Also, there are fears of the rise of the delta variant slowing the global economic recovery, particularly in the US and China. Slow economic growth is bad for stock markets. 

Today, markets seem to be reacting badly to new regulations in China, affecting the tech sector there, plus all of the above. The FTSE 100 is composed of companies that get their revenues from across the globe. Therefore, global events and concerns tend to move the index along with all the other major indexes.

Last month, I was writing about how fears of inflation were spooking FTSE 100 investors. I think the markets have clearly become more jittery. After the coronavirus market crash in March of last year, the only way was up. Things looked to have gotten about as bad as they could get. Now, the focus seems to have turned to when the good times will end, at least for the stock markets.

What am I doing about the panic in the markets?

Investors are behaving in a very risk-off fashion at the moment. We have bond yields and the US dollar index rising at the minute. This suggests that investors are seeking a haven for their money and turning away from riskier assets like stocks. The bull run in stocks was most definitely risk-on.

I am not prone to shifting my investments around as the mood in the markets changes. In my SIPP, I own global bond funds. These should do well in a risk-off environment. I also own global stock funds, which should do well in a risk-on environment. In my Stocks and Shares ISA, I pick my own UK stocks. It would be a mistake to think that all stocks are the same. Some of my ISA picks are FTSE 100 companies, which tend to move with global events. Others are from the FTSE 250 and AIM 100, which tend to feel UK level events more keenly. 

Stocks in the healthcare and consumer staples sectors are more defensive, and their revenues tend to be more stable through the peaks and troughs of the business cycle. Then there are cyclical stocks. These are very sensitive to the business cycle. Sensitive stocks are somewhere between cyclical and defensive.

I believe I have diversification across asset classes (bonds and stocks) and within asset classes across my portfolios. I don’t lean too heavily into one country or sector at the expense of others in my stock holdings. So, when stock markets slump, my ISA might take a hit. But, my bond holdings in my SIPP tend to get a boost. When one sector is doing badly, another one I am exposed to might be doing well. I had tried to time and chase the markets before and failed. A well-diversified portfolio that I can commit to for the long term has not failed me so far.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

James J. McCombie does not own any of the shares mentioned in this article. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Jumbo jet preparing to take off on a runway at sunset
Investing Articles

Down 70%+ since 2020, is IAG’s share price an unmissable bargain?

IAG’s share price is still down around 73% from its pre-Covid level, but with the business performing well last year,…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

£17,000 of shares in the FTSE 100 dividend giant can make me £18,874 every year in passive income!

This FTSE 100 dividend superstar has an 8.8% yield with dividends projected to rise. It looks very undervalued to me…

Read more »

Investing Articles

2 top UK growth stocks I’m buying for my Stocks and Shares ISA in July

Looking for UK-listed growth firms to add to a Stocks and Shares ISA? Our writer highlights two he's planning to…

Read more »

artificial intelligence investing algorithms
Investing Articles

This overvalued growth stock makes Nvidia look cheap!

ARM Holdings is a growth stock that’s benefitted from the AI rally. Muhammad Cheema takes a look at whether this…

Read more »

Investing Articles

1 penny stock I’d buy today while it’s 63p

This penny stock's down 70% since last March, yet could be set for a big comeback as the firm rebuilds…

Read more »

Businessman use electronic pen writing rising colorful graph from 2023 to 2024 year of business planning and stock investment growth concept.
Investing Articles

Buying 8,617 Legal & General shares would give me a stunning income of £1,840 a year

Legal & General shares offer one of the highest dividend yields on the entire FTSE 100. Harvey Jones wants to…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

£25k to invest? Here’s how I’d try to turn that into a second income of £12,578 a year!

If Harvey Jones had a lump sum to invest today he'd go flat out buying top FTSE 100 second income…

Read more »

Union Jack flag in a castle shaped sandcastle on a beautiful beach in brilliant sunshine
Investing Articles

2 lesser-known dividend stocks to consider this summer

Summer is here and global markets could be heading for a period of subdued trading. But our writer thinks there…

Read more »