The FTSE 100 is down 2.5% today. Across the pond, the S&P 500 is also down 1.4%. With stock market falling, it’s key for me to understand the reasons why. From this, I can then make more informed decisions on what I should buy, or if I should wait patiently to see if the market could fall further. Here are three factors contributing to the sell-off today.
US back from a long weekend
In honour of the Fourth of July celebrations, investors in the US enjoyed a long weekend. With the U.S. stock markets closed on Monday, it meant investors had more time to think ahead of the reopening today.
Given that sentiment was negative last week, I don’t think the public holiday did the stock market any good. If anything, it only gave more time for some investors to decide that they wanted to sell their stocks.
Granted, the UK stock market doesn’t correlate to the actions of the US perfectly, but it’s definitely a case of the tail wagging the dog. Due to the global nature of businesses these days, if the US stock market falls, the rest of the world unfortunately tends to follow.
Oil prices plummeting
After a huge rally so far this year, oil prices are starting to fall. Today, Brent crude is down almost 6% to trade at $106 per barrel.
This is having a clear impact on the FTSE 100 when I look at the largest losers for the day. Commodity giant Glencore is the worst performing stock, down 8.1%. Other similar companies such as Shell and BP are also down at least 6%.
Over a longer one-year time period, the performance of these stocks is still positive. Therefore, I want to take a pragmatic view and not panic-sell any stocks I own that are related to oil. I know that commodity stocks are volatile, and I am happy to take a long-term investment approach.
Stock market falling with recession concerns
Finally, there are renewed concerns about the potential for a recession in the UK. The Bank of England released the Financial Stability Report today, and it didn’t make for optimistic reading. It expects households and businesses to become more stretched. It also spoke of how the outlook for the UK has deteriorated materially.
Again, this is causing some investors to panic and move out of stocks and back to cash. Personally, I’m staying invested right now. Cash is getting eroded by high inflation, so I’d rather invest in income-paying shares to provide me with a yield even if the share price falls in the short term.
The long-term trend of the FTSE 100 has been higher. A day in the red isn’t pleasant, but I’m not going to hit the panic button yet.
