As the FTSE 100 loses 150 points, what should we do now?

Covid cases rise again and the FTSE 100 starts to fall. Where will it go next? And more importantly, how should investors react?

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The FTSE 100 dropped 150 points Wednesday morning as Covid-19 cases are starting to rise again. That’s close to 2.4%, and it’s being echoed across Europe. The French CAC 40 also dropped, as did the DAX in Germany, where a new local lockdown has been introduced.

Over in Tokyo, daily cases climbed again, to a level not seen for nearly two months. And states across the US are reporting renewed rises. Commentators seem to be squabbling over whether this constitutes a second wave or a continuation of the first. But I see that as a pointless distinction.

Is the FTSE 100 heading for a second wave of falling, or a continuation of the first wave? Or is this just a blip in a general recent uptrend? And what does it matter?

Stepping back

Let’s first try to put this 150-point drop into some perspective. It might be hitting the financial headlines, but it only sets the FTSE 100’s tentative recovery back by about a week. Even after the drop, we’re still looking at a gain of 26% since the index touched bottom in March.

At that point, at 4,899 points, the Footsie was down 35% from the start of 2020. As I write, that’s greatly improved to a loss of 17% year-to-date. I see nothing to panic about. In fact, I saw nothing to panic about in March either. Instead, I saw a fantastic opportunity for investors to buy top quality stocks at knockdown prices. 

We might not be seeing quite the same super low prices now. But the FTSE 100 is still, in my view, very much in bargain territory. We should still, I say, be keeping calm. And we should be buying shares now that will provide us with steady income streams in the decades ahead.

Where’s the FTSE 100 going?

But right now, the biggest game in town seems to be trying to guess where the stock market will go next. I have no idea what level the FTSE 100 will be at by the end of the week, next week, next month, or whenever. Nobody has. But I’m going to make some more general predictions. And, without trying to sound too cocky, I’m very confident in them.

Over the rest of 2020, Covid-19 cases will rise and fall, by varying degrees at varying times in varying places. That’s just the way these things happen. If we’re beating the disease, cases won’t fall by exactly the same number every day, day in, day out.

Long-term trend

Likewise, I’m sure the FTSE 100 will complete its recovery and get back to long-term growth. I just don’t know how long it will take. And there will be ups and downs along the way. A bad day’s Covid news? Expect the FTSE to fall. Cases looking better one day? Expect it to rise. I’m sure of these things because that’s the way stock market reactions have always worked.

In the long term, they go up, and that’s what investors should be thinking about. We’re in tough social and economic times right now. But as far as investing goes, I say the great 2020 buying opportunity is still very much with us.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Views expressed 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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