2020 has been an awful time for FTSE 100 investors. Britain’s most prestigious index of UK shares plummeted to its lowest in a decade in March as the Covid-19 crisis ravaged the world’s economies. The subsequent relief rally has run out of steam and the Footsie is now on the cusp of dropping deep into 5,000-point territory as market confidence fades.
Owners of FTSE 100 shares shouldn’t get too despondent though. In fact, I remain quite upbeat! History shows us that, over the long run, share indices always come roaring back from stock market crashes. And share investors have a chance to get very rich in the process.
During the 2008-2009 stock market crash the FTSE 100 struck a nadir close to the 3,800-point marker in February 2009. Yet it came roaring back during the following decade and struck all-time highs around 7,500 points in summer 2018. Many who bought in at the depths of the crisis would made an absolute fortune in that time. And the 2020 market crash gives you and I a great opportunity to get seriously rich too.
3 reasons why…
There’s a number of reasons why we can expect FTSE 100 share prices to surge in the next few years from their recent lows.
- Huge support by central banks helped companies avoid a total meltdown following the initial Covid-19 explosion, launching new stimulus packages and slashing interest rates. Ultra-loose monetary policy looks likely to continue supporting corporate profits too. Just this week, the Federal Reserve said it will keep rates locked around record lows “until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.”
- UK shares postponed, reduced, or cut altogether dividends payouts as the pandemic raged. It hastened the sell-off across the FTSE 100 and other indices. But these measures have bolstered the chances of strong share price recoveries. Why? Cash-heavier balance sheets should feed through to improved profitability in the coming years and drive stock prices northwards.
- Market sentiment remains shaky, but it’s slowly becoming more positive. Should major economies continue to keep a lid on a second wave of infections, then confidence will keep on improving. Positive news on a vaccine would also supercharge demand for UK shares.
Expect the FTSE 100 to strike back
I’m not saying the stock market recovery will be straightforward. The FTSE 100’s rise from March’s lows has run out of steam more recently and confidence is likely to remain fragile for some time yet. Aside from concerns over Covid-19, investor sentiment will also be put under pressure from US-Chinese trade tensions, Brexit, and political uncertainty in the States.
Still, as the economic cycle begins to crank into gear, I’m confident share prices will start to lift off. The 2020 stock market crash provides a great opportunity to buy FTSE 100 shares at rock-bottom prices and to get rich as they surge in value.
And there’s plenty of cut-price, quality UK shares to choose from following the crash.
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.