Buyers pile in after new FTSE 100 crash

After another plunge in share prices sent the FTSE 100 index to its lowest since August 2016, Graeme Evans looks at causes and a remarkable recovery.

Despite being told by the experts that there's room for "one last hurrah" from global markets in 2019, investors were probably left feeling anything but optimistic today after another gruelling session for shares.

We're not in bear market territory just yet, but the FTSE 100 index continues to head in that direction after taking its losses since May's peak to 15%.

Global growth worries deepened overnight when the US Federal Reserve cut its forecasts for 2019 but still pledged to tighten monetary policy further with two rate hikes on top of Wednesday's rise.

That wrong-footed markets, with the Dow Jones Industrial Average down 1.5%, the S&P 500 falling 1.5% and the Nasdaq Composite losing 2.2%.

The FTSE 100 was down by as much as 1.7% at one stage today, although the top flight recovered from 6,646 to 6,737 as the session wore on. The FTSE 250 initially lost 2% of its value.

Source: TradingView  Past performance is not a guide to future performance

Internationally focused stocks were the biggest casualties in the sell-off, with miners including Antofagasta and Randgold Resources impacted by fears of a consumption slowdown if the global economy falters.

Several FTSE 100 stocks are now sitting on losses of more than 40% so far in 2018, led by British American Tobacco and Micro Focus International.

An accumulation of events have been blamed for the slump since October, including US-China trade wars, economic jitters, political risk and country specific issues such as Brexit.

Today's events also leave investors wondering what has happened to the usual Christmas bounce, which has happened every year without fail. The average rally in December since 1998 is 5.8% with the highest being 12.2% in 2008.

Charlton Illingworth analyst Jeremy Grime asks whether the Christmas bonus for investors this year will be in the form of cheaper-looking stocks.

He said:

"When we look back this time next year I can't help but feel we will be saying ‘why didn’t we buy last Christmas' Santa gift of weak markets".

As we report today in our look ahead to US markets in 2019, this fits in with the view of a number of large investment banks, who believe that fundamentals remain sound.

They argue that there's still further to run in the current cycle with a potential upside for those investors who can stomach the volatility.

Candace Browning, head of BofA Merrill Lynch Global Research, said: "The current weakness in the markets is not a reflection of poor fundamentals.

"Rather, it's caused by a confluence of idiosyncratic shocks that create very real risks for investors to be concerned about but also opportunities for vigilant, well-positioned investors to pursue."

In particular, analysts point out that not one major economy is near recession and there's been no financial meltdown or significant debt default.

However, last night's comments from Fed chairman Jerome Powell about a moderating trajectory for growth in 2019 won't help confidence. His guidance now points towards two more rate rises, rather than the three expected on Wall Street.