Its been a highly uncertain period for investors in recent weeks. Indeed, the FTSE 100 has plunged by 399 points in the last five weeks alone and, if it continues at the same rate moving forward, it could be trading below 6,000 points by mid-November. This would be the first time since 2012 that the FTSE 100 traded below 6,000 points.
However, even if it does drop to below 6,000 points, investors shouldnt panic. Indeed, it could be a superb buying opportunity. Heres why.
A major cause of the current uncertainty in the FTSE 100 is continued problems in the Eurozone. While the UK and US Central Banks have pumped large amounts of money into the economy via their quantitative easing/monthly asset repurchase programmes, the ECB has done little in comparison to encourage growth and stave off a period of deflation.
This now looks to be causing issues not only for the regions GDP numbers, but also for US and UK companies that are operating within the single currency region. As a result, earnings figures could disappoint in the short term, which is causing investor sentiment to weaken and send index levels lower.
Of course, the recent Fed minutes show that it is unwilling to raise interest rates until the macroeconomic outlook improves. This should provide support to the US and UK index levels moving forward, but may not be enough to prevent the FTSE 100 from pulling back further especially if Eurozone numbers continue to disappoint in the short term.
Despite this, a further fall could prove to be a blessing in disguise for most investors. Thats because it is likely to be a temporary blip, since (as mentioned) Central Banks now seem to be willing to stick with an ultra-loose monetary policy for as long as is necessary. Even the ECB is now coming round to the idea that deflation poses a far greater risk than inflation, and so it appears ready and willing to conduct its own model of asset repurchases.
As a result, stock markets and the global economy should deliver strong growth over the medium to long term. Certainly, there will be lumps and bumps ahead and 6,000 points is a realistic level before Christmas. However, as the goal of all investors is to buy low and sell high, the present time provides the perfect opportunity to buy low, safe in the knowledge that Central Banks around the world will step in if asset price declines become too much to bear.
So, with now seemingly a great time to buy high quality companies at discounted prices, which shares should you buy, and why?
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Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.