The FTSE 100 index has been under intense pressure in 2022 as the crisis in Ukraine escalates. After soaring to a multi-year high of £7,683, the stock has moved into correction territory and fallen by about 10%. It is trading at £7,088 while most of its companies are in the red year-to-date. Still, it has done better than other European indices like CAC 40 of France, DAX index of Germany, and FTSE MIB of Italy.
There are several reasons why the FTSE 100 index has dropped sharply in the past few months. First, the Bank of England (BOE) has had a role to play. The bank surprised investors in November when it decided to hike interest rates. It then followed it up with another hike in February and hinted that it will deliver further hikes this year.
The BOE argued that rate hikes were necessary, considering that the economy saw a surge in inflation while the labour market tightened. Still, despite the two rate hikes, UK’s inflation remains at elevated levels. Historically, indices like the FTSE tend to underperform in a period of high-interest rates.
Second, the FTSE 100 index has crashed because of the ongoing crisis in Ukraine. The Boris Johnson administration has announced new sanctions on Russian oligarchs and companies in its response. As a result, some FTSE constituents with exposure to Russia have dropped sharply. Evraz, whose share price has dropped by more than 85% from its highest level this year, is a good example.
The other top performers are Glencore, Anglo American, BHP, Antofagasta, and Shell, which have risen by more than 20% because of the surge of commodity prices. Others that have eked a gain are companies like Standard Chartered, British American Tobacco, and Centrica.
FTSE 100 laggards in 2022
The worst performers in the FTSE index are companies with exposure to Russia. The Coca-Cola share price has dropped after it announced that it will exit the country. Its share price has dropped by 40% this year. Other laggards are firms like Scottish Mortgage Investment Trust, Croda, Ocado, Melrose, Barratt Development, and Flutter Entertainment.
FTSE 100 index forecast
The FTSE 100 index has been under pressure in the past few days. It has managed to cross the 50-day and 100-day moving averages while the Stochastic oscillator has moved above the oversold level. It is between the 23.6% and 38.2% Fibonacci retracement level.
Therefore, there is a likelihood that the sell-off will continue as bears target the next key support level at 6,588, which is along the 50% Fibonacci retracement level.