The UK’s Financial Times Stock Exchange (FTSE) 100 Index fell 168 points to 6584 on Friday, February 28th, a 2.5% drop. It is the FTSE’s biggest one-day drop since October 2020 and the end to the Index’s worst week so far in 2021. The drop mirrors similar movements in the United States in the Dow Jones Industrial Average, NASDAQ, and S&P 500, and in other European markets.
The stock market dip around the world is thought to be the result of trader anxiety over a potential fourth surge in coronavirus cases as well as unexpected drops in the prices of government bonds and corresponding higher yields. Falling bond prices are generally viewed to be a sign of higher inflation, which is what markets are reacting to around the globe. Says Chris Beauchamp, chief market analyst at the UK trading platform IG: “This is the most serious move to the downside in months; not since the see-saw movement of September and October have we seen such a serious drop (in stocks). It is clear that very few investors are willing to step up and buy the dip, at least for the time being.”
All industry sectors were affected by Friday’s FTSE dip. Some of the greatest losses were in basic materials (-3.91%), energy (-3.71%), commercial property (-3.19%) and technology (-2.71%). While all markets in Europe closed longer on Friday, the FTSE was the hardest hit.
The FTSE is up nearly 4% YTD and is unchanged for the entire month of February. The Index is still struggling to return to pre-COVID-19 levels.
Why you should care about stock movements
Few people around the world own a lot of individual stocks. However, that doesn’t mean that your financial well-being isn’t tied to what happens in world markets. If you have a retirement fund at your work or if your employer offers a pension, those funds are likely invested heavily in the stock market. The good news is that most of these investments are held for years and years, so a day’s or even a week’s drop in prices is not likely to affect the money you’ll have at retirement.
Another reason to care about stock dips is that they can affect the value of the company you work for and its ability to expand, develop new products and hire new employees. That pet project of yours might just get tabled if the company isn’t making money or can’t get new funding because its stock is worthless.
Stock market movements over time affect the price of money. That means the amount of money you pay in interest when you borrow to finance a new home or a car. Even a small increase in your interest rate can add up to big money throughout a 30-year home loan.
Lastly, if you do choose to invest in individual stocks, dips in the market like the one on Friday can represent an opportunity to buy quality companies at a discounted rate. Of course, it’s important to do one’s research before investing in any financial product.
About the FTSE 100
The FTSE 100, informally referred to as the “Footsie” index, tracks the 100 largest companies on the London Stock Exchange, based on market capitalization. As the Dow Jones Average in the United States and CAC 40 in France, it is seen as an indicator of the general health of companies that do business under UK law. The index is owned and maintained by the FTSE Group, a wholly-owned subsidiary of the London Stock Exchange.