FTSE 100 investors may be starting to get a weary sense of market fatigue. Of course, it’s not just FTSE investors — whether it’s the S&P 500, NASDAQ 100, ASX 200, CAC 40, or the DAX — it seems that the next unpredictable black swan event is always just around the corner.

For context, the UK’s premier index sunk from 7,674 points in mid-January 2020 to just 5,191 points on 20 March 2020 during the pandemic mini crash. After significant volatility, the FTSE 100 recovered to break through the symbolic 8,000-point barrier by mid-February 2023.

But it has since fallen back to 7,430 points today.

FTSE 100 volatility abounds

The FTSE’S volatility through 2023 perhaps reflects wider macroeconomic factors: the ‘big four’ banks — Lloyds, Barclays, HSBC, and NatWest — are delivering higher profits but mostly because of higher net interest margins. There comes a point where dealmaking breaks down and debt stress outweighs the higher margins.

Meanwhile, FTSE 100 oil majors are benefitting from elevated oil prices — driven by post-pandemic demand, the Russia-Ukraine war, and now the Israel-Hamas war. But high oil prices also create stickier inflation — driving the rest of the index down. Meanwhile, with the Bank of England base rate at 5.25% and likely to stay elevated, the housing market, alongside the major housebuilders, is struggling compared to recent comparators.

The FTSE also hosts some of the largest miners in the world — with the likes of Glencore, Anglo American and Antofagasta calling the index home. And again, these miners are working with volatile commodity prices — including gold, which as the real asset safe haven of choice is within touching distance of record highs.

And ever since the pandemic began, there’s been seemingly endless volatility events. The GameStop saga, the Ukraine War, the Partygate scandal, the Pakistan crisis, the Truss mini-budget, the US election, the Capitol riots, the Myanmar coup, the crypto surge (then winter), the Afghanistan withdrawal, the inflation story, Credit Suisse, Silicon Valley Bank, the interest rates crisis, escalating Sino-US tensions, and now the Israel-Hamas War.

The new fear is that the conflict, which thus far has been relatively confined to Israel and Gaza, spirals into a wider regional war involving Saudi Arabia and Iran alongside their proxy backers.

Is there always a black swan?

Few analysts thought that Russia would invade Ukraine, and similarly, few thought Hamas would be able to penetrate the Israeli defences that surround the Gaza Strip. You could argue that the covid-19 pandemic was a black swan (a completely unpredictable, negative market event), and yet pandemics have hit the global economy in the past.

For perspective, the National Bureau of Economic Research estimates that 40 million people — representing 2.1% of the global population — died in the Influenza pandemic of 1918-1920, with the average country seeing real per capita GDP reduced by 6%.

Looking beyond the Middle East, much investor attention is on the world’s second largest economy, China. For context, FTSE Russell data shows that roughly 80% of FTSE 100 corporate income is derived from overseas — and the global economy relies on Chinese growth.

It’s worth highlighting that Chinese economic data appears relatively positive at present. State stimulus saw GDP grow by 4.9% in July-September compared to a year earlier, compared with analyst expectations for a 4.4% increase. But fears for the country’s real estate sector — which accounts for as much as 30% of GDP — are rising.

This potential crisis has been brewing since Evergrande halted production on some projects in August 2021 due to overdue payments. Fellow real estate titan Country Garden is now in similar financial straits.

And then there’s the wider Sino-US tensions to consider. Over the past year alone, there’s been regulatory problems over US-listed Chinese tech stocks, arguments over the origins of covid-19, and disputes over a potential BRICS reserve currency.

There’s also worries over a possible TikTok ban in the US, tensions over Ukraine, Israel and Taiwan, spy balloon recriminations, bans on certain semiconductor exports from the US to China, and bans on the export of certain critical minerals from China to the US.

Then there’s the Huawei ban in the US, followed by the iPhone ban for government employees in China, and the contested Aukus pact for Australian nuclear submarines.

Putin’s recent meeting with ‘dear friend’ Xi in China highlights the geopolitical tensions — and yet after Apple CEO Tim Cook’s visit to China, Vice Premier Ding Xuexiang has enthused that China is willing to provide more opportunities for foreign funded enterprises, including Apple, to develop in China.

Yesterday was the 36th anniversary of the Black Monday crash. Five years after the worst one-day crash in living memory, markets across the UK, Europe, and the US were rising by as much as 15% a year. The bear market of the 2008 Global Financial Crisis lasted just five quarters, and the pandemic recovery was even faster.

Of course, there’s always a negative market event on the horizon. But over the long-term, the FTSE 100 has usually continued to deliver dividends — and investors can overlook this positive longer-term picture.

As a caveat, past performance is not an indicator of future returns.