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2 reasons why the FTSE 100 could crash below 7,000 points in December

2019 has proved to be another year of extreme political and economic uncertainty for investors to digest, conflicts for the FTSE 100 which has pulled Britain’s blue-chip index this way and that.

After a rip-roaring first seven months of the year, intensifying fears over President Trump’s trade crusade with major trade partners since August, and a steady deterioration in key economic datasets the world over has shaken investor nerves.

Indeed, the FTSE 100 is now trading at six-week lows of around 7,200 points and there’s plenty of reason why the index could keep sinking in the final sessions of the year.

Spreading trade wars

Talking about US-led trade wars would appear to be the most obvious place to start. News of souring relations between lawmakers in Washington and Beijing has spooked share investors since the closing days of November, putting hopes of a deal being hammered out any time soon to the sword.

And news on this front hasn’t exactly improved since then, with Trump advising yesterday that not only was there “no deadline” for a trade deal with China to be finalised, but that the signing of any accord could be put off until the US presidential election next November.

This news forced share bourses across the world lower in Tuesday trading, though the rot really set in following other US trade news on Monday. Then, Trump decided to slap larger tariffs on steel and aluminium imports from Brazil and Argentina, stemming any bullishness investors may have had for the global economy in 2020 still further.

Handy targets

There are signs the White House isn’t done yet either. In an escalation of hostilities with the European Union over subsidies given to Airbus, Trump said he’s considering putting extra tariffs upon the continental trading club. He also suggested tariffs could be placed on French products like champagne and luxury handbags in response to a new tax in France which targets US tech firms.

With Trump fighting an impeachment enquiry and gearing up for late 2020’s presidential election, taking aim at foreign powers he accuses of exploiting US interests isn’t only a handy distraction, but an effective way of mobilising his support base.

It’s clear then the tough trade talk isn’t going to die down any time soon, a worrying omen for the FTSE 100 and other world indices for not only the remainder of 2019 but for next year too.

Sterling gains?

It’s also possible the outcome of next week’s UK general election could have huge ramifications for the Footsie.

Recent polling continues to show the Conservatives have a strong chance of winning a parliamentary majority this month, a scenario that could give a significant boost to sterling. CEO of deVere Group, Nigel Green, reckons the pound would rise to $1.35 in this event to and levels not seen since May.

And this would be bad news for the FTSE 100 as a whole. A vast proportion of firms here report in foreign currencies and so any gains in the pound have a negative effect on profits.

Such stocks have gained in recent times as Brexit pressure has smacked sterling, so the exact opposite can be expected if the Tories win the upcoming election and provide some Brexit clarity.

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Royston Wild has no position in any of the shares 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.