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Why the FTSE 100 had a sharp fall yesterday and what I’d do now

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After two consecutive sessions of closing above the 7,000 mark, the FTSE 100 index fell hard yesterday. It closed at 6,859, which is a 2% fall from the previous session. 

This is the biggest fall in the FTSE 100 index in almost two months. It last fell by 2.5% on 26 February. This is also only the second time the index has fallen 2% or more in 2021 so far. 

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I can see three big drivers for this decline. 

#1. Tobacco biggies fall hard

FTSE 100 cigarette manufacturers Associated British Foods and Imperial Brands were some of the biggest losers yesterday. Each saw a share price tumble of over 7% as tighter nicotine regulations are being deliberated in the US. This is yet another challenge to the tobacco industry, which has been facing increasing pressure from regulators for a while now.

#2. Results disappoint

Some FTSE 100 companies released disappointing updates. Leading the pack was Associated British Foods, whose share price fell almost 6% after it reported a fall in both revenues and profits. This was due to the closure of its Primark stores through much of last year. A positive outlook for the current year has not helped.

Miners like Rio Tinto and BHP also saw an over 2% decrease in share price after they released their updates. Both reported falls in production of industrial metals like iron ore, which may have disappointed investors at a time when commodity prices are strong. 

#3. Coronavirus variants weaken investor confidence

A new strain of coronavirus originating from India was recently detected in the UK. Because of this, India was put on the travel red-list yesterday. The emergence of this variant is demoralising at a time when the UK is just about coming out of its third lockdown and travel was expected to pick up pace shortly. British Airways owner International Consolidated Airlines Group was down by 8% yesterday, dragging the FTSE 100 index even further down.

Why I am not worried about the FTSE 100 index

I am too worried right now about the state of the index, though. As I write today, it is already trading slightly above yesterday’s close. This means that investor mood may be on the mend. 

Also, I think we should refrain from reading too much meaning into an index fall over just one session. On average, the FTSE 100 index is at 6,907 for April. This is the highest level seen since last May. To put it another way, the index is healthier than yesterday’s fall suggests. 

The index is also up by 2.9% from last month, which is the biggest monthly gain in four months. And compared to last April, the FTSE 100 index is up 20.6%. Admittedly, this is because the effects of the market crash were still being felt last year at this time. But it does reflect what a long way the index has come. 

What I am doing now

I think that given the still uncertain times we are living in, I will expect occasional market volatility and not let it distract me from my investment goals.

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Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has recommended Associated British Foods and Imperial Brands. 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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