The FTSE 100 dipped below 5,000 points a handful of times in March. And I really thought we could be in for even worse. It was still the early days of the Covid-19 pandemic, and the full nature of the crisis was yet to unfold.
Perhaps I’m a bit cynical, but these days I’m always expecting pessimism from UK investors. That’s not surprising, considering that the devastating banking crash is still so fresh in our memories. And then we had the tediously drawn-out Brexit thing, which I think is still likely to harm our economy for some years to come.
Well, we survived the financial meltdown. And possible Brexit damage looks fairly trifling now compared to the devastating economic damage a prolonged coronavirus lockdown could cause. But the bigger FTSE 100 crash I was fearing has not happened, at least not yet.
No, instead we’ve seen a rebound, which has me scratching my head. At the time of writing, the FTSE 100 is precisely at 5,800 points. From March’s low of 4,899 points, that’s a gain of 18%. And what good news has there been to drive such an improvement in sentiment? I don’t really see any.
FTSE 100 rebound
So why is the Footsie on the way back up again? I can’t help feeling it’s partly due to years of over-pessimism.
I do think investors over-reacted to the banking crash and pushed shares down too low. In the short-term that looks obvious, judging by the fairly quick rebound from the very bottom of the market. But I think there’s been a lingering undervaluation feel about the whole market ever since.
So when the Brexit shock came along, I think investors were dealing with shares that were already undervalued. And again I think the pessimism was overdone. So we had already-oversold shares being oversold again. And we were still in the midst of that undervaluation when the virus lockdown hit the FTSE 100.
Can’t go much lower?
I think there’s a very strong likelihood that investors have stood back, taken stock of what’s been happening, and started to ask “Can these shares really be worth so little?“
I do see a reasonable chance of the FTSE 100 getting back above 6,000 points fairly soon. But, against that, I’m also seeing perhaps too much optimism regarding this lockdown thing.
Some countries, even the eminently sensible Germany, are starting to soften their restrictions. It’s a tough balancing act, between the risk of further virus outbreaks, and the potentially deep wreck that further economic closure could create. And if the pandemic goes on for longer than the optimists hope (which I think it will), we could be in for further FTSE 100 downturns.
Long-term FTSE 100 level?
But, it really doesn’t matter, at least not in the short term. In fact, the longer we face a depressed stock market, the better. For long-term buyers, that is.
I don’t care where the FTSE 100 will be next week, next month, or even next year. I’m more interested in where it will be in another 10 years. And I’m confident that will be a lot higher than 6,000 points.
