S&P 500 futures continued to collapse in early trading this morning, along with global indices, falling nearly 5%. Nasdaq 100 futures also fell nearly 6% at the same time. Asian markets also closed heavily down, with both Tokyo and Shanghai off by more than 7% on the day.
S&P 500 futures officially entered bear territory today, having fallen more than 22% from their all-time highs. US markets are set to dive this week in the bear market, amid gloomy prospects surrounding the US trade war and weak signals regarding the possibility of a settlement to the conflict.
Tariffs are not new, and markets reacted strongly to them last week. However, Trump’s indications over the weekend that he will maintain the tariffs further frustrated markets, which are clinging to hope for a de-escalation.
Trump’s weekend golfing after the widespread market collapses could also be interpreted as a sign of indifference – which he has denied – to the consequences of his recent actions, suggesting he may be sticking to his plan.
Timing the bottom is a fool’s game
The question facing many investors as we begin what will be a very turbulent week in markets, is do I sell or just hang in there?
Scott Gallacher, Director at Rowley Turton commented:
“Sharp market falls like this are almost always a buying opportunity for brave investors with a long enough time horizon. The challenge isn’t logic, it’s emotion. There may well be further declines ahead, but trying to time the bottom is a fool’s game. By the time things ‘feel’ better, markets will likely have already bounced. Often, it’s better to be early to the party than to miss it entirely.”
The mantra since COVID has been “buy the dip” but the problem is that the world is now massively leveraged. On top of that, a significant portion of the market is now driven by algorithmic trading programmes, many of which have stop-loss mechanisms built in. As markets fall, these triggers activate more selling, perpetuating the downward spiral.
- Armchair Academy: Introduction to Equity Sector Futures
- US market turmoil could be good news for the London Stock Exchange
- How to cope with US stock market volatility
- What Are Europe’s Top Five Utilities Stocks In Q2?
Years of ultra-loose monetary policy by central banks, coupled with historically low interest rates, have allowed excessive leverage to build. All it took was one man and a round of tariffs to shake the system. Had it not been tariffs, something else would have eventually triggered the collapse. But the reckoning is now upon us.
Don’t catch that falling knife
The once-favoured mantra of ‘buy the dip’ has given way to ‘don’t try to catch a falling knife’.
Ross Lacey, Director & Independent Financial Adviser at Fairview Financial Management said:
“Stock markets declining is a feature of investing, rather than a bug. Any investments need to be made within the context of a wider financial plan, which accounts for what will happen when — not if — stock markets go down. When stock markets crash, it’s absolutely the case that some company share prices will go down and stay down. This is why we don’t advocate concentrated, single stock investing. We instead recommend having a broad range of companies across different sectors, industries and countries.”
Lacey thinks that now is a good time for investors to review whether they should continue drawing from their investments or turn the tap off temporarily. For those adding to their investments, it can represent a good opportunity to get in at prices last seen in April 2024.
Welcome to a philosophical sell-off
The FTSE 100 isn’t falling, it’s capitulating under the weight of a world unravelling, as what we are witnessing is not solely market volatility but a structural repricing of the global market in a potentially post-globalisation world.
This sell-off is somewhat no longer technical and is instead philosophical, with investors reassessing the value of risk assets in a reality where political retaliation, not economic efficiency, sets the price.
This could be good for the UK
However, it’s worth remembering that Britain came out relatively favourably, with the joint lowest tariff levels globally, half that of the EU. Additionally, with over 70% of FTSE 100 revenues derived from non-US markets, Britain’s primary index finds itself uniquely buffered against the ongoing demand disruptions across the Atlantic.
Furthermore, this re-pricing has meant that British markets, particularly the FTSE 250, are now trading at truly exceptionally attractive valuations, for those that are able to take a long-term investment horizon.
Tony Redondo, Founder at Cosmos Currency Exchange, told us:
“The 30-year consensus is dead—every nation is now on its own. This could be a rout or buying spree by week’s end. Trump’s “necessary medicine” line is fuelling fear of inflation, stagnation and has seriously shaken confidence.”
JP Morgan has now upped recession odds to 60% for 2025. The FTSE 100’s drop is panic-driven and sell-offs this sharp often overshoot. The pound also looks like a mixed bag, trading at a 7-month low against the Euro, but at decade highs vs. the AUD and NZD and the South African Rand. Uncharted waters lie ahead.
