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Why is the Lloyds share price continuing to fall?

Lloyds Banking Group (LSE: LLOY) has long been a popular stock to hold for retail investors. On most days it ranks in the top five most traded stocks within the FTSE 100 index.

Yet just because it is a popular stock, does not mean that it is a certain buy. If we rewind to the aftermath of the general election in December last year, I would have agreed that the share price had strong upside on the back of a supposedly-business-friendly Conservative victory. Added to this was the successful passage of the Withdrawal Agreement through the House of Commons, which enabled the UK to leave the European Union at the end of last month and get some degree of clarity on Brexit.

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Both these factors were positive for the bank, especially as it is one of the more retail-heavy banks within the UK, and so it is more sensitive to the sentiment of the retail sector like you and I. The share price rallied close to the highs of the year around 65p in December, but since then has seen a linear downtrend, currently trading around 47p.

Why is it continuing to fall?

Firstly, we have to acknowledge the undeniable influence of the coronavirus and the market wide sell-off that it has caused. Investors are scared and do not want their money in equities, so they are selling stocks and buying in to safer havens such as gold and bonds.

Very few (if any) stocks have been able to even tread water during this sell-off over the past few weeks, and so part of the move lower in the Lloyds share price can be attributed to the risk sentiment from the virus.

However, a fall of over 27% from late December until now cannot be solely put down to the virus, as this does not stack up on the timings and the broader FTSE 100 sell-off (which has only really moved lower since the middle of February, and only by around 13%).

Another reason for the Lloyds drop is down to its weak 2019 results, which were released last week. It showed a 26% drop in pre-tax profit to £3bn, part of which can be put down to PPI payments. But even without that, it would not have been a strong year. So the move lower over the past week can be due to investors going through the results and deciding that this is not a share they want to invest in.

Looking forward, a final reason the share price is falling is due to the outlook for the bank. Interest rates may be cut here in the UK to counteract the impact of the virus, which would be negative for Lloyds, which would see margins squeezed even further. And the situation with Brexit is not as rosy as we thought — no trade deal would certainly hit the bank hard.

Overall, while I am not selling out of Lloyds at the moment, I will be waiting to buy more after the further weakness that I think we will see over the next few months. It is a good long-term buy at 47p, but I think you could be buying it at levels around 40p soon  and that is even better!

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Jonathan Smith owns shares in Lloyds Banking Group. The Motley Fool UK has recommended Lloyds Banking Group. 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.