The FTSE 100 tumbled again on Tuesday morning, just days after the UK’s biggest share index dropped almost 4% amid fears surrounding the new Covid-19 Omicron variant.
So what does this latest drop tell us? And should investors worry? Let’s take a look.
What happened to the stock market on Tuesday morning?
The FTSE 100 dropped by more than 1% on Tuesday morning. This has essentially reversed Monday’s gains following the rout the share index suffered at the end of last week. On Friday, the FTSE 100 fell by almost 4% in what was its biggest daily drop since June 2020.
Taking into account its performance on Tuesday morning, the FTSE 100 has now plummeted by roughly 3.5% compared to its position on Thursday morning.
The FTSE 100’s latest slump followed comments by Moderna CEO, Stéphane Bancel, that raised fears that the Covid-19 variant will be with us for a while. In an interview with the Financial Times, Bancel admitted that vaccines were likely to be less effective against the Omicron variant. He also added that his company may require ‘many months’ to develop new vaccines at a sufficient scale.
Following Tuesday’s stock sell-off, it is clear to see that investors are now worried that the new Covid-19 variant has the potential to significantly impact the global economy.
Some of the biggest losers on Tuesday, perhaps unsurprisingly, included companies connected with the hospitality and travel sectors. Shares in EasyJet and IAG, owner of British Airways, fell by more than 2% on Tuesday morning. On a similar note, Whitbread, owner of Premier Inn hotels, fell by almost 3%.
Oil shares took a tumble as well. Giants BP and Shell saw their share prices fall in the region of 2.5% on Tuesday morning, amid fears global oil demand is set to decline.
The FTSE 250 also fell on Tuesday morning. The UK’s second-largest share index slumped by more than 1%, shedding over 200 points.
How is the FTSE 100 likely to perform for the rest of the week?
Any well-informed investor will tell you that predicting the short-term performance of a stock market is near impossible.
Despite this, however, as news of the new Covid-19 variant develops, there is potential for share prices to remain volatile as investors react to new information.
Should investors be worried about recent stock market wobbles?
Whether you fear or relish volatile stock market periods will depend on your attitude to risk and investing style.
For example, if you’re a short-term trader, you may feel volatile periods in the stock market provide more opportunities to profit from big swings. That being said, volatile periods also provide more opportunities to suffer big losses!
In contrast, if you’re a buy and hold investor, then recent slumps shouldn’t cause too much concern. That’s because investors with a long-term vision will be all too aware that stock markets generally head upwards in the long term (though there are no guarantees!). Investors playing the long game essentially believe they are avoiding the ‘zero-sum game’ associated with short-term traders.
Finally, if you’re a trader keen on ‘buying the dip’ then volatile periods may also provide an opportunity to pick up stocks at knock-down prices. However, before embarking on this strategy it’s fair to say that assessing the period where stocks are cheapest is an extremely difficult task. That’s because any stock that plummets will always have further room to fall.
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