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Nowhere to hide as investors flee for the exit

Nowhere to hide as investors flee for the exit

by Daniel Grote Feb 09, 2018 at 12:00

 

There's been nowhere to hide this week from the sharp sell-off that has spread across global markets, fuelled by fears of higher interest rates and inflation.

A sea of red has engulfed our exclusive Accumulator data table tracking global markets, with all major stock markets down heavily this week.

After marking the start of the year by hitting all-time highs, markets had already shown signs of stuttering in recent weeks. But the sell-off accelerated dramatically this week, as investors grappled with the prospect of the era of easy money coming to an end.

It started with Friday's better-than-expected US jobs data.  A sharp jump in wage growth prompted investors to reassess their expectations for interest rate rises from the Federal Reverse, sparking a stock market sell-off, with the Dow Jones dropping 2.5%, its biggest fall since the Brexit vote.

But that was just the precursor to Monday's spectacular slump in US markets. The Dow Jones' 4.6% fall was the heaviest since August 2011, when the sovereign debt crisis gripped the eurozone.

Shockwaves from the sell-off spread through global markets, with a  strong fightback coming unstuck as the bears reasserted their authority, sending the Dow 4.2% lower yesterday.

The Dow Jones is now officially in 'correction' territory, having fallen by more than 10% from its peak, and our Accumulator table shows the impact this has had across the globe.

The broader S&P 500 US index is down 6.9% over the five days to yesterday in pound terms, and losses were even sharper in dollars. Global markets are down nearly 6%.

Investors seeking shelter from the stock market falls were given little respire elsewhere. Gold, traditionally a safe haven prized when markets turn sour, struggled to pick up traction, ending the week marginally down in pound terms.

Losses on bonds were more limited than those on the stock market, but they continued to be dogged by inflation and interest rate fears. While UK investors reaped a 1.3% return from US treasuries, that was only down to the dollar's rally against the pound. Property was meanwhile almost as badly hit as shares by inflation fears.

Last week's Accumulator column highlighted the contrarian 'sell' signal generated by Bank of America Merrill Lynch's 'bull and bear indicator', with investors having poured $102 billion into shares since the turn of the year.

Such 'sell' signals had been accurate 11 times out of 11 since 2002, and this week's slump looks like making it 12 out of 12.

As markets have fallen, investors have been fleeing at a record pace. Investors pulled a record $30.6 billion (£22 billion) from shares this week, having piled in to the tune of $25.7 billion the week before.

But the 'bull and bear indicator' is still flashing a contrarian 'sell' signal, deeming markets excessively bullish. Corporate earnings, the analysts believe, will be the crucial determinant of whether this slump represents a correction, or the start of a bear market.

You can access the Accumulator here.

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Comments  (3)

  • an elder one: 

    The immediate effect of computer trading - trouble is us retail investors can only watch and wonder after the event. Who writes these dodgy algorithms.

    17:55 on 09 February 2018

  • Alastair Kendall: 

    dodgy robots ....they are coming.

    21:02 on 09 February 2018

  • an elder one: 

    Robot: another name for analyst by some measure - analysis by guessing games! I wonder how brexit is weighted in their equations for instance.

    10:59 on 10 February 2018

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