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The FTSE 100‘s down 2.5% because the starting of the yr. This implies £10,000 invested in an index tracker then could be price £9,750 now. It’s clearly not a terrific return, however the index has demonstrated appreciable volatility in current months. Unsurprisingly, a variety of this volatility has been created by the brand new US administration.
What’s been happening?
The FTSE 100 has reached vital highs and lows. The index hit document highs, peaking at 8,908.82 factors on 3 March. This rally was fuelled by enhancing macroeconomic situations, together with moderating inflation and expectations of rate of interest cuts from the Financial institution of England.
Sturdy company earnings throughout sectors reminiscent of healthcare and primary sources additionally improved investor confidence. Moreover, geopolitical developments led to elevated European defence commitments, with governments asserting to carry budgets amid tensions between Russia and Ukraine. This boosted defence shares and contributed to the FTSE 100 reaching new highs.
Nonetheless, the optimism was short-lived. World markets have been rattled by US President Donald Trump’s aggressive tariff insurance policies. In April, Trump imposed sweeping tariffs on imports and escalated a commerce conflict with China and different nations. China retaliated with its personal tariffs, intensifying fears of a worldwide recession.
The FTSE 100 nosedived. Sectors closely uncovered to worldwide commerce, reminiscent of banking and mining, suffered vital losses. Whereas a short lived rollback of tariffs supplied transient aid, uncertainty surrounding commerce coverage continues to weigh on market sentiment.
Shopping for the index or particular person shares
The FTSE 100 isn’t large on progress, however dividends are usually elevated. And whereas common whole return for the blue-chip index over the long term considerably lags the S&P 500, there’s a broad consensus that UK and European markets have been ignored lately. Coupled with US market turmoil, there’s an opportunity markets may outperform on this aspect on the pond.
Nonetheless, my choice is for particular person shares. It may be tougher to constructed a diversified portfolio this manner, however it may be achieved with time. One inventory I’m keeping track of is the index’s most beneficial firm, AstraZeneca (LSE:AZN).
The inventory plummeted in current weeks, amid considerations about US tariffs on prescription drugs. I believe the very first thing to notice right here is that inserting tariffs on prescription drugs may push up the price of important medicines for US residents. However Trump needs pharma and biotech corporations to spend money on US manufacturing. It’s fairly a dangerous gamble.
Because it stands, AstraZeneca generates 42% of its gross sales within the US, however solely producers 22% of its merchandise there. That may very well be a difficulty for Trump, however I wrestle to see how tariffs can efficiently be carried out with out inflicting extra harm to the US client. What’s extra, reshoring pharma manufacturing would take years.
My hunch is that the tariffs will ultimately be restricted on pharma corporations. And that is what makes AstraZeneca an attention-grabbing prospect at 21 occasions ahead earnings. This determine is ready to drop to fifteen occasions by 2027, primarily based on present projections. Nonetheless for now, I received’t add to my AstraZeneca holdings. However I’ll maintain a really shut eye on developments.
