Over the past five trading days, the FTSE 100 has fallen by 7%. It’s now back to levels seen not that long ago in December 2022. The demise of Silicon Valley Bank and Signature Bank — the second- and third-largest bank collapses in US history — have spooked markets on both sides of the Atlantic.
News about problems at Credit Suisse hasn’t helped the situation. Nor did yesterday’s Budget. From the moment the Chancellor started his speech, the Footsie shed 90 points.
All this is particularly disappointing given that the FTSE 100 reached 8,000 for the first time as recently as 15 February. And five days later, it recorded its all-time high of 8,014. The index is now 8% lower.
The million dollar question
Investors are now asking: when will it climb back over 8,000?
That’s a difficult question to answer. Stock market movements aren’t easy to predict. But history tells us that, over the long term, the Footsie should rise. After all, when it was launched in January 1984, it had an opening value of 1,000.
Of course the past may not be a good predictor of the future. As Warren Buffett once said: “If knowing history made you rich, librarians would be billionaires.”
But I don’t have a crystal ball, therefore the past is a key tool at my disposal.
Historically, March hasn’t been particularly good for the index. On average, the FTSE 100 gains 0.22% during the month. Only four others have delivered a lower average return. This might have something to do with investors looking to close out their positions as the end of the tax year approaches.
Whatever the reason, there’s potentially some good news on the horizon.
April has traditionally been the second best month for the Footsie, with an average monthly gain of 1.8%. The index has only performed better in December. Each April, the new Stocks and Shares ISA annual amount I can invest starts. This might be the catalyst for the better performance.
Overweight
The FTSE 100 is a weighted index, which means the shares of larger companies have a bigger impact. The stocks of the five most valuable companies — Shell, AstraZeneca, HSBC, Unilever and BP — account for a third of the movement in the index.
With energy prices easing from previous highs, concerns about the health of the banking sector and inflation continuing to affect household incomes, these stocks might struggle in the coming months.
This will make it more difficult for the index to reach the heights it did in February.
Bargain hunt
I’m confident that the FTSE 100 will get to 8,000 again. But I don’t know when.
Successful investing is about ignoring short-term price movements and keeping faith with the stocks of good-quality companies.
However, the recent downturn in the market means there are some bargains around.
For example, I don’t believe Lloyds Banking Group and HSBC are worth 10% and 12% less, respectively, than they were a week ago. And in my opinion, nothing has fundamentally changed to justify the stocks of Shell and BP falling by 12% over the past five days.
If only I had some spare cash to take advantage of these opportunities!
