FTSE plunges after global market sell-off

Analysts and economists have been telling us that what goes up must come down, it was just a matter of time as a number of factors begin to bubble over

Article updated: 11 October 2018 8:00am Author: Helal Miah

  • Global stock markets in selloff mode as investors reassess valuations in the face of rising interest rates.
  • China’s growth rate, the hike in tariffs between the US and China and the impending trade wars, rising oil prices also add to woes. 
  • Analyst highlights ambiguity behind potential of a bounce back as questions and uncertainty increases over FANGS and tech companies

We have been talking ourselves into a sell-off and this is precisely what we have got now. Analysts and economists for some time have been pondering what the trigger for the next sell-off would be, citing a wide range of possibilities. These reasons for asking the questions have namely come as a result of the prolonged market rally that we have seen since the unprecedented amounts of central bank stimulus and quantitative easing with some investors becoming uneasy with the level of the stock market and recent valuations, especially in America which has been exacerbated by Trump’s tax cuts.

The sell-off has been gathering strength for about two weeks now led by the Asian markets as concerns were raised about China’s growth rate, but fingers will also point at the hike in tariffs between the US and China and the impending trade wars.

But for us and many other analysts, a market sell-off was always going to be most likely as a result of the rising interest rate environment, especially in the US. We had the much expected hike in September from the US Federal Reserve now taking interest rates to 2.25% with the expectation that the policy makers will keep in their path of steady rate hikes as the US economy strengthened. But with unemployment recently hitting 3.7%, and as signs slack in the economy and with the labour market disappearing, there is the expectation that prices and inflation could start running ahead of the Fed’s expectations. As a result, the policymakers may now think about increasing rates at a faster pace than anticipated.

We have seen US treasury yields pickup while the S&P index, which only touched its all-time highs on the third of October has been in a sell-off mode subsequently, falling by over 5%, this sell-off just gathered pace yesterday and is following through this morning. Other factors that have not helped are the rising oil prices and fears that it could hit $100 when sanctions on Iran’s oil takes effect; while over here in the UK, the rise in sterling off the back of a possible Brexit deal have not helped UK shares.

This global stock market sell-off should not come as a big surprise, but the question that some investors will be asking is one of whether we will see a quick bounce back like we saw at the start of the year.

This time round it may be different; previously the sell-off and bounce back had been led by the FANGS and tech companies. With increasing questions about these companies’ valuations and all the other overhanging worries in the global economy, it may be a while until we see those all-time highs again.

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Helal Miah

Investment Research Analyst

After graduating with an economics degree from University College London, Helal started his career within private banking at Smith & Williamson Investment Management and later held analyst and fund manager roles with the Industrial Bank of Japan, Schroders and Mitsubishi Corporation. He is a chartered fellow of the Chartered Institute for Securities & Investment.