Why FTSE 100 recovery has stalled

Fading fears of a full-blown trade war between the US and China has been a big positive for global stockmarkets, but equity investors are now taking money off the table ahead of possible US air strikes against Syria.

Already at odds with Russia over the poisoning of former spy Sergei Skripal, risk here is of serious escalation of hostilities in the Middle East if Donald Trump and the West provoke Syria’s allies Russia and Iran.

Oil markets have already priced in the threat of disruption to supplies, Brent crude spiking above $73 a barrel for the first time since 2014.

Even without Syria, there is plenty to underpin oil prices right now, not least missiles from Yemen targeting Saudi Arabia and possible US sanctions against key producer Iran over its nuclear programme.

Source: interactive investor               Past performance is not a guide to future performance

A decent recovery from the first-quarter sell-off had the FTSE 100 (UKX) trading at a six-week high, and Thursday’s early pullback has been only limited in nature. There seems little doubt that Trump will attack Syria, so absolutely everything depends on Russia’s response, yet investors have enough good reasons to stick with stocks to prevent a full-blown exodus based only on ifs and buts.

A cessation of hostilities in the Middle East, strong US earnings season and American reconciliation with China over tariffs would further restore confidence in this nine-year bull market.

Saga (SAGA) has made a good start to the difficult job of restoring confidence in the business following December’s profits warning. Full-year results bear the scars of problems at the core retail insurance and travel businesses, but, crucially, there has been no further deterioration in the numbers.

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It is encouraging to see strong cash generation and retail broking growing volumes quickly again, while increasing the annual dividend by 5.9% is another big win for income seekers.

That Saga shares have performed largely in line with the wider market this year is encouraging and a prospective dividend yield of over 7% attractive.

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