What a difference a week can make. Sentiment in the financial markets has changed significantly, and although we are not out of the woods yet, it is improving. One way to measure the magnitude of positivity (or lack of negativity) is the price of the FTSE 100 index.
The FTSE 100 Index includes the 100 largest companies in the United Kingdom, by market capitalization. So in a broader sense, businesses and the index as a whole are a barometer of the health of the economy. Recently, the stock market crash of more than 25% had propelled it into a bear market.
What can we learn from the rally of more than 400 points in the index this week, and what action points does it present to investors?
Declining case, rising market
The change in sentiment that is pushing the market up can be seen in several coronavirus titles this week. Earlier in the week, China announced that it had not reported any new viral deaths for the first time. Wuhan Province has ended its lockdown, showing the world that the virus can be defeated.
Later in the week, Italy confirmed that the number of new cases had peaked there. While the nation (and the economy) is still not in a recovery phase, the news is very encouraging.
It is the main driver of the FTSE 100 index rally. This news is not centered on the United Kingdom, but it has a ripple effect here. It shows investors and market participants that the virus is likely to peak and then recede, which the economy desperately needs. The first key sectors such as travel, retail and leisure can reopen, the better.
Where has bounced the most?
It won’t be a quick recovery for the airlines, but savvy investors are looking to the long term. Since there is light at the end of the tunnel, longer-term investors have been quick to buy these undervalued stocks.
Is this the end of the crash?
It is still too early to announce the end of the crash. While we are now far from the lowest extremes observed a few weeks ago, when the index dropped below 5,000 points, we could see another decline. It could happen if we see the UK struggling to eliminate the virus, or if the lockdown takes much longer than expected. However, the historic market crashes are generally characterized by a recovery in V, a sharp decline (first half of V) followed by a sharp rebound (second half of V). This leads me to believe that if it is not the end of the crash, we have seen the lowest.
The Post The FTSE 100 stock index rebounded by 7% this week! Is the coronavirus market crisis over? first appeared on The Motley Fool UK.
us better investors.“data-reactid =” 44 “>Jonathan Smith and The Motley Fool UK have no position on any of the actions mentioned. The opinions expressed on the companies mentioned in this article are those of the author and may therefore differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. At The Motley Fool, we believe that taking into account a diverse range of ideas makes us better investors.
Motley Fool UK 2020