Shares began their third day of falls this morning, with the FTSE 100 sliding more than two per cent in morning trading after record falls on Asian markets overnight.
Here's how analysts responded this morning.
1. Fundamentals are still strong
|"Whilst there was no single event which prompted Monday’s sell off, fears over rising interest rates dampening economic growth and the fact that the market is long due a correction, have been weighing on sentiment. The first signs falling confidence and investors have been surprisingly quick to sell out and book profits from the phenomenal rally over the past few months.|
"Traders are not panicking, the speed of the selloff implies that it won’t be able to hold out for an extended period of time. While few have proved willing to catch a falling knife, on confirmed signs of a turnaround, investors could start to see this an epic buying opportunity; fundamentals are still strong."
– Fiona Cincotta, City Index
2. Opportunity in adversity
"The FTSE 100 finds itself 130 points off the lows, an impressive performance by any standard; for those investors with a horizon beyond the next 48 hours, the chance to pick up some stocks at cheaper prices should be too good to pass up.
"European stocks are also surging from the lows – missed among the turmoil yesterday was a speech from Draghi that suggested the ECB is more concerned than they have let on about the strength of the euro. What they can do about it in the face of the dollar slump remains to be seen, but an extension of QE might be a possibility."
– Chris Beauchamp, IG
3. This is a volatility event
"There are several factors behind the sell-off, but our sense is that this is largely a risk or 'volatility' event. First of all, in the past three weeks tactical indicators began to look stretched… In this context, a rise in bond yields and signs of normalisation have begun to make for a change in the investment climate, from one that has been nearly risk insensitive to one that is more risk aware.
"To this end, the speed of the sell-off (recall those sell-offs in 2015) is driven by risk management in the context of position imbalances – that sounds technical, but the point is that the sell-off is provoked more by arcane risk factors than fundamentals. As such, trading will be choppy for the next few days, but with volatility having gone from being very low, it is already very high now and may soon be traded lower."
– Michael O'Sullivan, Credit Suisse
4. The warning signs were there
While the fall in global equity markets looks dramatic, it is no more dramatic than the record rises we have seen since the end of November. For that reason alone many would argue a correction was on the cards.
The party may be over for now but this could be more of a sobering correction than a rout.
There have been plenty of warnings over the past few weeks that equities were overvalued and that US stock markets in particular were overheating.
– Jacob Deppe, Infinox
5. Brace for more
"The indiscriminate selling will probably continue until Wall Street finds its first bottom. The FTSE1 00 was off its lows of the day half an hour into the trading session, down around 150 points from yesterday’s close. For what it's worth, sentiment has improved from overnight pricing which at one point pointing to a 350 point opening loss for the FTSE 100."
– Jasper Lawler, London Capital Group
6. The storm after the calm
"This sell-off is the storm after the calm, as we have enjoyed an extended period of plain sailing in markets, which have crunched happily upwards for the last couple of years. Despite the heavy fall in the Dow Jones, the index is still trading around 20 per cent above where it stood this time last year, so it’s important to keep some perspective.
"There is also some good news to latch on to if you like your cup half full – a strong US economy is good for global growth, and that should bode well for company profits. However markets are likely to see this as a double-edged sword, at least in the short term, as it means US interest rates may normalise more quickly."
– Laith Khalaf, Hargreaves Lansdown
7. Back to normal
"Let’s be clear – in the long span of financial history, this is not news. Yet in a world where the concept of a 'correction' almost feels alien and where equities felt like an unstoppable one-way bet for a while, the normality of a setback can feel more painful.
“Holding this course as volatility eases won’t seem easy – but at this stage of the cycle, the money is made by keeping your head when others are losing theirs.
“But what we have seen is perhaps the greatest sign of real health in markets for a long time. The tech-fuelled rally in the US had long lost any sense of reality in its valuations, the prospect of inflation remaining low forever could not last, and we have a new and untested Fed Chair. It would be more worrying if markets didn’t react to all of this."
– James Bateman, Fidelity International
8. Temporary setback
"We do not see any evidence in the data of either rampant inflation or a looming recession. Without those signs, the current stock market sell-off is most likely a temporary setback rather than a seismic shift into a bear market."
– Marie Owens Thomsen, Indosuez
9. Further weakness on the cards?
“It is possible that as a result of the current volatility in the US and Asian markets, that the UK could experience further weakness. However, there is no need to panic just yet.
"What we must remember is that rates are only rising because the economic background is stable enough to handle it. It is rare for bear markets to occur unless investors believe a recession is coming, and given recent upgrades to economic growth expectations, we are not expecting that at this stage.”
– Jane Sydenham, Rathbones