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5 reasons why the stock market is down this week

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The FTSE 100 opened on Monday at 7,172 points, but yesterday the stock market traded down almost to 7,000 points. Although we’ve seen a bit of a jump to close out the week, the Footsie hasn’t been a happy place for much of the week. Here are several reasons that have contributed to the pressure on stocks.

1. Oil price falling

Brent Crude currently trades at $98 per bbl, having a particularly steep tumble on Tuesday. After falling 6% on the day, it hasn’t managed to climb back above the key $100 level for the rest of the week. I shouldn’t forget that at the start of the month it was trading above $110, so it’s been quite a move lower since then.

The negative impact on the oil price has weighed on commodity giants in the FTSE 100. The likes of Glencore, BP and Shell have all struggled this week, largely due to the move lower in oil.

2. High US inflation

On Wednesday, the inflation print for June was released for the US. It came in above expectations at 9.1%. High inflation leads investors to think that interest rates will need to be raised further by the US Fed at the next meeting at the end of July.

Higher interest rates are traditionally bad for companies, as it makes borrowing and issuing debt more expensive. This dragged the US stock market down. It also impacted the UK stock market, as these days financial markets around the world are increasingly correlated.

3. Political uncertainty

The race to succeed PM Boris Johnson is under way, with several high-profile members vying for the top job. Five contenders are in play at the moment, with a live TV debate due tonight. After whittling it down to the final two candidates, a final vote will ensure a new leader is appointed for the start of September.

Regardless of political affiliation, the main issue here is uncertainty. Investors don’t know what type of leader will be appointed. This will have an impact on future taxation and spending. Both points could be a positive or negative for businesses and consumers.

4. Earnings season

The period for Q2 and half-year earnings has begun. For some companies, it hasn’t been a great start. I wrote yesterday about the 18% fall in the Admiral share price following some disastrous results out from fellow insurance specialist Sabre.

A slew of other earnings are due out in coming weeks, and so investors could be de-risking ahead of this. Further, when we’re in a situation like yesterday when several high-profile insurance stocks fell from one earnings report, it can have a disproportionate impact on the stock market in general.

5. Bank of England warning

Sir Dave Ramsden (Deputy Governor of the Bank) gave a speech yesterday, commenting that the economy was in for a tough time and that more interest rate increases are likely coming.

Governor Andrew Bailey also spoke earlier in the week. Although he noted that interest rates should fall in the long run, he made it clear that his team will tackle high inflation with interest rate hikes.

This rhetoric didn’t help the stock market. At a time when reassurance is desired from senior decision makers, the more cautious outlook was instead presented.

The post 5 reasons why the stock market is down this week appeared first on The Motley Fool UK.

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Jon Smith has no position in any share mentioned. The Motley Fool UK has recommended Admiral Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.