It has been a rough couple of weeks for FTSE 100 investors. After rising from a low of around 6,650 at the end of 2018 to a high of 7,450 in June of this year, during the past few weeks the UK’s leading blue-chip index has slumped, falling below 7,100 – a level not seen since February.
Unfortunately, it doesn’t look as if the index’s slump is going to stop any time soon. Indeed, I believe there are four main reasons why the FTSE 100 is falling right now, and until these issues are resolved, it could continue to decline.
The first and most significant issue facing the FTSE 100 and other stock markets around the world is the brewing global trade war.
The US and China have been trying to outdo each other with trade tariffs and threats for the past year. It doesn’t look as if these two economic competitors are going to reach an agreement anytime soon.
On top of this, last week, the World Trade Organisation awarded the US a $7.5bn tariff allocation against the EU as punishment for illegal EU subsidies to Airbus. This has only worsened investors’ concerns about the impact the global trade war will have on company prospects.
The global trade war is already having an impact on the world’s largest economy. US economic numbers have been deteriorating over the past few months, and most economists now believe that the country is heading for a recession next year.
UK economic figures are also deteriorating. The country’s burgeoning service sector has started to contract, according to economic survey figures, and the construction sector is also in the doldrums.
No article about the problems facing the FTSE 100 would be complete without mentioning Brexit. When combined with all of the other uncertainties facing the global economy, Brexit is now a big issue not just for policymakers in the UK, but in the rest of the world as well.
With economic fundamentals deteriorating in both the US and Europe, any economic shock could tip both of these economies over the edge. Brexit might be the catalyst that starts the next global recession, and with nearly 70% of the FTSE 100’s profits generated outside the UK, the index’s constituents are not going to escape unscathed.
In times of uncertainty, it is essential to have a strong team of managers ready to help steer businesses through the rough patch. But this is something missing from the FTSE 100 right now. This year has seen a string of FTSE 100 CEOs step down with 17 of the index’s constituents now either looking for, or preparing for, the appointment of a new leader.
These departures have shaken investor confidence in UK blue-chips, and we could see more C-suite moves before the year is out.
The bottom line
So overall, all UK blue-chips are currently facing a perfect storm of deteriorating economic fundamentals, growing barriers to free trade, and management upheaval.
It doesn’t look as if any of these uncertainties are going to be resolved before the year is out. As a result, I do not think it is unreasonable to say that the FTSE 100 could decline further from current levels.
Rupert Hargreaves owns no share mentioned. 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.