The broad US sell-off that saw stocks tumble to an eight-month low this week “has likely caught no one by surprise”, Fidelity International has said.
The Nasdaq Composite yesterday fell by more than 4% – its worst one-day performance since the Brexit vote in June 2016. Meanwhile, the S&P 500 suffered its heaviest one-day slump since February after falling 3.3%.
But the signs of a global market sell-off have been easily identifiable. “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,” said Paras Anand, head of asset management in Asia Pacific at Fidelity International.
Investors are spooked at the uncertain political and economic outlook, opting instead for asset classes and sectors which seemingly offer more robust fundamental prospects and shown predictable price action, added Anand.
As the contagion spread to Asia, US President Donald Trump railed against the Federal Reserve for “going wild”. Trump added: “They’re raising interest rates and it’s ridiculous” and insisted that the trade war with China had nothing to do with the market sell-off.”
With the US Fed expected to hike interest rates in 2019, Fabrizio Quirighetti, co-head of multi-asset at SYZ Asset Management said: “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,” he added.
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