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Next stop 4,000 for the FTSE 100? Here’s why it might happen

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As crystal balls are scarcer than toilet paper right now, no one has any idea when markets might recover. It could take a few weeks, a few months or, yes, even a few years. 

Without wishing to depress Foolish readers further, I don’t even think we’ve hit the bottom yet. Indeed, I think there’s certainly a chance that the FTSE 100 could fall to a level not seen since the Financial Crisis. And that’s regardless of how much support is promised by Boris Johnson and his government.

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Cases rising

It seems clear that the number of people testing positive for coronavirus won’t suddenly diminish, particularly in the UK and the US. Tragically, the number of people dying in countries such as Iran doesn’t show any signs of slowing either.

Clearly, I’m not a virologist and have no better understanding of the likely trajectory of the virus than you. Not even the experts are sure as to whether it will prove less resilient when the warm weather arrives over the next few months (if that happens in the UK!). That just shows how difficult it is to be confident about anything right now.

This state of affairs is made worse by the possibility that countries seemingly successful in containing the outbreak like China could see a ‘second wave’ as people return to work. No one knows. And because investors hate uncertainty, I think further falls are more likely than not for this reason alone.

Not in the numbers

While the market has reacted to the coronavirus by predicting a significant slowdown in economic growth, we don’t know the full extent of this and won’t for a while yet. Only once companies start posting earnings updates over the next few months will it be possible to calculate the true cost.

Considering that few of us will now be inclined to visit bars and restaurants, high street footfall in major UK cities has already tumbled. Sporting events have also been cancelled or postponed, so the damage could be extreme. With consumers in defensive mode, many established businesses could go to the wall. Redundancies will likely soar. 

Some of this is already baked in. We just don’t know by how much.

In other news…

The coronavirus isn’t the only problem investors have on their minds at present. The recent tanking in the price of oil, thanks to tensions between Russia and Saudi Arabia for example, is another thing that’s got people worried.

In one sense, this fall should be good for the global economy. However, with so many people in lockdown, there’s no one to take advantage. Somewhat ironically, news like this would usually send airline stocks flying higher. 

Combine this with the possibility of a no-deal Brexit later in the year and the uncertainty surrounding the US presidential elections, and 2020 looks like being one of the worst years for investors for a very long time.

That’s not to say there won’t be rallies along the way. The fact that we saw a huge bounce last Friday is, from a psychological point of view, perfectly normal. Fear begets greed (and vice versa) and indexes don’t bottom out immediately. You’ll find plenty of points between 2007 and 2009 where markets briefly moved higher only to fall even lower. 

FTSE 100 at 4,000? I wouldn’t rule it out.

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Paul Summers 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.

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