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Market sell off: analysts react to sharp stock falls

In the wake of a US sell-off that has led the FTSE 100 to trade at a six-month low this morning, analysts pile in to offer their interpretations of what is going on.

The FTSE 100 hit its lowest point for six months when markets opened this morning after a US stock sell-off prompted a 1.6% fall. 

US stocks fell dramatically on Wednesday as investors were gripped by fears over rising bond yields. 

The Dow Jones Industrial Average lost 832 points, equivalent to 3.2% of its value, while the S&P dropped 95 points or 3.3%, its worst fall since February. Tech stocks took some of the biggest hits of the day as the Nasdaq Composite slumped by 316 points. 

Markets around the world felt the knock-on effect of the fall. In the UK the FTSE 100 initially fell 1.6% to 7,030 before gaining back about 30 points. This marked the lowest the market has been since April, but the FTSE 100 did not drop below 7,000 for the first time since March as some had predicted.

So what is going on? 

Click on to read analysts' reactions. 

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The FTSE 100 hit its lowest point for six months when markets opened this morning after a US stock sell-off prompted a 1.6% fall. 

US stocks fell dramatically on Wednesday as investors were gripped by fears over rising bond yields. 

The Dow Jones Industrial Average lost 832 points, equivalent to 3.2% of its value, while the S&P dropped 95 points or 3.3%, its worst fall since February. Tech stocks took some of the biggest hits of the day as the Nasdaq Composite slumped by 316 points. 

Markets around the world felt the knock-on effect of the fall. In the UK the FTSE 100 initially fell 1.6% to 7,030 before gaining back about 30 points. This marked the lowest the market has been since April, but the FTSE 100 did not drop below 7,000 for the first time since March as some had predicted.

So what is going on? 

Click on to read analysts' reactions. 

Leave a comment!

Please sign in or register to comment. It is free to register and only takes a minute or two.

Russ Mould, investment director, AJ Bell

'A five-day losing streak, capped by the worst one-day fall in America’s S&P 500 index since February, has investors asking themselves whether this is just the ‘healthy correction’ so beloved of market commentators or the beginning of something more serious.

'While it is tempting to describe stock markets as volatile, they are really nothing of the sort, at least by the standards of the last 20 years.

'Even allowing for Wednesday’s nasty slide, the S&P 500 has moved by more than 1% from open to close on a daily basis just 34 times in 2018 to date. While that is an increase on 2016’s soporific count of just eight times, it leaves the US on track for its quietest year, using this benchmark, since 2006.'

'And although Wednesday’s 3.3% fall feels frightening, it is only the tenth daily open-to-close movement this year of between 2% and 5%, that pales next to 55 such daily rises or falls during the crisis of 2007 and 2008, or even the 34 such intra-day gyrations of 2011, when US debt was downgraded and the Greek debt crisis began to simmer.'

 

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Adrian Lowcock, head of personal investing, Willis Owen:

'Stock markets have been slow to react to last week’s comments from the US Federal Reserve Chairman Jerome Powell where he stated the US was a long way from neutral on interest rates and indicated more rate rises were on their way.  The effects of his comments sparked a sell off in the bond markets last week and that has finally reached equity markets.

'Markets fear that the Federal Reserve will raise interest rates faster and higher than initially anticipated which raises concerns they are behind the curve. This scenario usually ends up triggering a recession in the US which would be felt on a global scale.

'However, we are not there yet and the effect on equity markets so far has not been too significant. The Fed Chair’s comments have led to a reassessment of the situation and changes in investor sentiment which has resulted in a sell-off. Given segments of global stock markets such as the technology sector have been trading on high valuations, some profit taking and correction are inevitable.'

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Edward Park, investment director, Brooks Macdonald

'As the Fed gradually normalises policy and reduces the size of its balance sheet the liquidity environment is worsening and with that we should expect to see patches of heightened volatility.

'In February we saw a sharp market reaction to the US wage growth number, in August the market sold off catalysed by, initially, very small sanctions against Turkey. Fed Chair Jerome Powell’s comment on 3rd October that the Fed was still a "long way from neutral" is the hook for markets this time round.'

He said the US 10 year trading at 3.16% 'is broadly in line with the FOMC’s long run rate expectation which should provide treasuries with some support at this level.'

'A key caveat to a more constructive stance on the selloff is today’s US CPI number. As ever in 2018 we expect this number to be crucially important and should we see a sharp upward surprise in the inflation number then the market could start to price the current Fed expectations as ‘behind the curve’ which would severely stress equity and bond markets.'

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Paras Anand, head of asset management, Asia Pacific, Fidelity International

'The sharp sell-off in the US has likely caught no one by surprise. If anything, investors have been wondering how, in the face of tighter monetary policy, a contracting labour market and rising oil prices, the US has continued to be so resilient.

He added: 'investors are concerned about an uncertain political and economic outlook, and have chosen both asset classes and sectors which appear to offer more robust fundamental prospects and which have demonstrated more predictable price action.'

'In this period, the concept of value has become secondary to the focus on the bumpiness of the path. The converse of this is that we have seen significant falls in parts of the market where uncertainty is high, such as emerging markets, China and the UK, all of which are now trading at historically low valuations.'

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Richard Hunter, head of markets, Interactive Investor

'US tech stocks inevitably bore the brunt of the sell-off overnight, having been at the vanguard of US market strength over the last year. Netflix and Amazon, for example, had both seen their share prices double and a pause for breath was a matter of time. In the UK, even prior to yesterday’s sell-off, the FTSE 100 had lost 6% in the year to date, as Brexit uncertainty and a relatively strong pound pinned down shares whose earnings largely emanate from overseas.

'For the moment, no trend has been established and despite some minor headline hysteria nothing fundamental has changed. Recent IMF comments added weight to concerns on global growth and further pressure could come to bear later in the day if the US inflation number confirms the probability of hawkish monetary policy.'

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Alastair George, chief investment strategist, Edison Investment Research

'The surge in volatility is similar to that seen in January and raises questions about an underlying weakness in equity market depth rather than any radical change in fundamentals.'

He added: 'We believe investors should first ensure that portfolios are appropriately positioned from a risk perspective, given the likelihood of a higher volatility trading environment. Second, investors should be actively looking for securities which have been unfairly discounted in what has been an indiscriminate sell-off. However, we do not feel it is time to change our cautious stance on developed equity markets in general.

'The US Federal Reserve has in our view again been unfairly criticised by US President Trump overnight, although understandably so given the attraction of deflecting attention away from rising global trade tensions, caused by the US administration’s recent policies.'

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Witold Bahrke, senior macro strategist at Nordea Asset Management

'Some market pundits claim there is no real 'new news', but in our view, we have reached a critical mass on negative news, which has triggered this sell-off.

'Bond yields spiking adding to monetary headwinds, global growth indicators (PMIs) falling and lastly political risk rising in the shape of the ongoing trade war, as well as Italy, are keeping investors awake at night. Each single issue is not new, but adding it all up you get a toxic cocktail for markets. Altogether, the stock sell-off supports our view the market narrative is changing from "buy the dip" to 'sell into strength."'

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Fabrizio Quirighetti, co-head of multi-asset at SYZ Asset Management

'We believe the recent correction has been triggered by the increase in US real rates, rather than inflation concerns, as was the case at end of January and the beginning of February.

'The realisation after the Fed’s meeting and Jerome Powell’s comments is that the Fed will continue to hike in 2019 – possibly at the same pace as this year. In other words, Powell signalled the Fed is now committed to bringing rates to a "neutral level" and potentially beyond, as its two objectives are fulfilled.

'As the Fed is draining liquidity from markets, the few sectors which were quite resilient so far, such as US small caps or US technology stocks, have suffered the most since the beginning of the month. We think it’s a "healthy" rebalancing correction, but we are somewhat concerned if this liquidity squeeze continues, it may severely affect credit, with ripple effects on the real economy and more negative impacts on broad financial markets.'

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Chris Alderson, head of international equity at T. Rowe Price

'We are heading into the hardest part of the cycle. It’s ten years since the collapse of Lehman Brothers and the punch bowl is finally being taken away. This year was probably as good as it is going to get for US earnings growth. Next year will probably remain a reasonable environment for risk assets, but not as good as it has been for the past few years.'

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Joe Amato, chief investment officer – equities at Neuberger Berman

'Equity markets tend not to go up in the straight line we have gotten used to since mid-2016. They do not need a recession as an excuse to correct, either – tightening conditions can push stock prices down even when earnings are sustained. Even if the current volatility turns out to be another false alarm, we still think it makes sense to use risk-market rallies over the coming months to adopt a more defensive stance.'

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