The UK FTSE has been battered lower over recent years by Brexit blues and over recent months by UK political instability. However, the appointment of Rishi Sunak has calmed the market for now and a general election is unlikely to be for the next 18 months. So, does this mean the lower FTSE share price has been overextended to the downside?
There are three reasons a bounce in the FTSE may be possible now.
- Global indices tend to move together and this week the Federal Reserve meets. Expectations are that with the slowing down in earnings from big-name tech stocks like Amazon, Alphabet, Tesla, and Microsoft the Federal Reserve may give some kind of dovish message on Wednesday. If it does stress slowing growth and/or slow the path of future rates that should boost stocks.
- The FTSE100 is currently trading at about 8.7 times the price/earnings ratio (below the lowest points in 2008 and 2011) and two standard deviations below its 10-year average. It is also cheap European wise and trading at a discount of around 20% when compared with European stocks.
- Over the last 22 years, the FTSE 100 has gained in value 17 times and only lost value 5 times. The average return has been 2.51% and the FTSE 100 even gained during this time over the 2008 period.
Is this a winter bargain worth pursuing on a dovish Fed response? Certainly, it’s one to watch.
Major Trade Risks: The major risk here is that previous seasonal patterns will not necessarily repeat themselves.
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