The FTSE 100‘s down 2.5% since the beginning of the year. This means £10,000 invested in an index tracker then would be worth £9,750 now. It’s clearly not a great return, but the index has demonstrated considerable volatility in recent months. Unsurprisingly, a lot of this volatility has been created by the new US administration.
What’s been going on?
The FTSE 100 has reached significant highs and lows. The index hit record highs, peaking at 8,908.82 points on 3 March. This rally was fuelled by improving macroeconomic conditions, including moderating inflation and expectations of interest rate cuts from the Bank of England.
Strong corporate earnings across sectors such as healthcare and basic resources also improved investor confidence. Additionally, geopolitical developments led to increased European defence commitments, with governments announcing to lift budgets amid tensions between Russia and Ukraine. This boosted defence stocks and contributed to the FTSE 100 reaching new highs.
However, the optimism was short-lived. Global markets were rattled by US President Donald Trump’s aggressive tariff policies. In April, Trump imposed sweeping tariffs on imports and escalated a trade war with China and other nations. China retaliated with its own tariffs, intensifying fears of a global recession.
The FTSE 100 nosedived. Sectors heavily exposed to international trade, such as banking and mining, suffered significant losses. While a temporary rollback of tariffs provided brief relief, uncertainty surrounding trade policy continues to weigh on market sentiment.
Buying the index or individual stocks
The FTSE 100 isn’t big on growth, but dividends are generally elevated. And while average total return for the blue-chip index over the long run significantly lags the S&P 500, there’s a broad consensus that UK and European markets have been overlooked in recent years. Coupled with US market turmoil, there’s a chance markets could outperform on this side on the pond.
However, my preference is for individual stocks. It can be harder to built a diversified portfolio this way, but it can be achieved with time. One stock I’m keeping an eye on is the index’s most valuable company, AstraZeneca (LSE:AZN).
The stock plummeted in recent weeks, amid concerns about US tariffs on pharmaceuticals. I think the first thing to note here is that placing tariffs on pharmaceuticals could push up the cost of vital medicines for US citizens. But Trump wants pharma and biotech companies to invest in US production. It’s quite a risky gamble.
As it stands, AstraZeneca generates 42% of its sales in the US, but only manufacturers 22% of its products there. That could be an issue for Trump, but I struggle to see how tariffs can successfully be implemented without causing more damage to the US consumer. What’s more, reshoring pharma production would take years.
My hunch is that the tariffs will eventually be limited on pharma companies. And this is what makes AstraZeneca an interesting prospect at 21 times forward earnings. This figure is set to drop to 15 times by 2027, based on current projections. However for now, I won’t add to my AstraZeneca holdings. But I’ll keep a very close eye on developments.
