On Monday morning, the FTSE 100 opened just above 7,530 points. Over the past couple of days, we’ve seen a sharp move lower, with it currently at 7,360 points.
There have been a few reasons that have driven this sell off. Even though long-term investors can do well to look past short-term noise, movements like this can create opportunities.
Construction data underwhelms
One of the factors that influenced the market this morning was disappointing UK data. The UK construction PMI figure was 48.9 versus the expectation of 51. A reading below 50 shows the construction sector is contracting, which obviously isn’t a great sign.
Therefore, it isn’t surprising to me to see homebuilders such as Barratt Developments and Berkeley Group in the red today.
This data doesn’t just influence the housing sector though. Construction is a good barometer of the overall economy. If less infrastructure, houses and other associated projects aren’t growing, it doesn’t suggest the outlook is that positive for the UK. This is why the overall stock market is being dragged down.
Higher interest rates in the US
Another reason came late yesterday when the US Federal Reserve meeting minutes were released. The actual meeting was in June, but the release of the minutes provided a more in-depth view of what was discussed.
In it, there were signs that the decision to pause interest rate hikes in June wasn’t unanimous, with some wanting to raise rates. Looking forward, it appears the US will continue to increase the base rate further in coming months.
This chatter caused the US stock market to fall. Given the correlated nature of global markets and the amount of FTSE 100 stocks that have exposure to the US, it had a knock-on impact on the UK stock market.
Earnings season wobbles
We’re starting to enter the Q2 earnings season, and there are signs it might not be that great. For example, Jet2 released results today which didn’t make for the best reading. As a result, FTSE 100 names in the same sector such as the International Consolidated Airlines Group are falling.
I think this unease from investors could continue into next week if we don’t get some strong trading updates from firms. However, this is an area where I feel investors can take advantage of.
If a share price is dropping due to poor results from a peer, this doesn’t necessarily mean another company will deliver equally disappointing results. If an investor has done their research and believes in the long-term direction, then the drop can provide an opportunity to scoop up some stock at a cheaper price.
This is also where drip-feeding money into stocks works well. By allocating a small amount to a company each month, it allows an investor to get a better blended average rate over a period of time.
