Lenses

A chart of the monthly FTSE 100 price looks something like this:

Click to enlarge, Monthly FTSE 100 Price

This is the chart that you’ll see on all the mainstream media channels and it shows that the FTSE 100 still has about 32% to fall if it’s going to match the worst of the global financial crisis (GFC).  This sounds like a long way until one thinks about a big failing with this type of chart.  It’s unit of measurement…  The FTSE 100 is priced in £’s and they’re constantly being devalued via inflation.  So, let’s take out a different lens and try and look at the chart in real, inflation adjusted, terms.

Firstly, let’s correct for the consumer price index (CPI):

Click to enlarge, Real (CPI) Monthly FTSE 100 Price

That shows that instead of falls of 32% being needed it’s actually closer to falls of 16% for parity with the worst of the GFC.

Perspective

If you were a trader on the financial markets, I’d think that you’ve probably had quite an interesting week.  After all the S&P500 is down 11.5% (an official correction without even going back into the declines of the previous week), our FTSE100 is down 11.1%, the Nikkei225 is down a more modest 9.6% while the ASX200 is down 9.8%.

Word on the street is that this has been caused by fear of what coronavirus, or to use its catchier name, COVID-19, could do to global financial performance, including the more than 1,000 companies contained within just those four faceless indices I’ve mentioned.  Years ago I proved I was a useless trader so with that in mind I’d also still suggest that some of the moves are caused by the coronavirus being a good excuse to have a market pullback given markets like the S&P500’s current hefty valuation.

Down market moves like this then give those of us who are paid to sell drama a great opportunity to come up with headlines like “Coronavirus meltdown: Airlines plunge as global stock markets suffer their worst week since the 2008 financial crisis” (I won’t link to the source of that one but if you’re interested Google is your friend) through to something a little more data driven like “Shares drop in worst week since financial crisis”

If you didn’t take personal finance seriously, articles like those might even be enough to cause you to panic (whether or not the first $100 billion trading day for the ETF SPY (an S&P500 tracker) was panic is of course debatable) with your own wealth or even not get started on the road to financial independence in the first place.