Described as a “stormy day” for equities, the FTSE 100 dropped by 2.1% during trading on 23 May, the largest single-day drop for as long as a year.
What goes up…
The Nikkei 225 fell by 7.3% which represents the largest single-day fall in two years. The S&P 500 remained largely flat, ending the business day just 0.3% down.
Looking at the underlying reasons for these numbers should leave investors scratching their heads as, except for the odd negative piece of news, very little changed in corporate UK, US or Japan. Yet the reaction was the complete opposite as, once again, markets changed thanks to sentiment not fundamentals.
As ever, it is economics and politics driving the markets though it is not domestic economics driving domestic markets.
On Wednesday (22nd), Fed Chairman Ben Bernanke used a string of words to say he “might, possibly, be thinking about an occasion where, on the off chance, he may – just may – consider” slowing down QE.
At the same time – in the same press conference – he reiterated his stance of waiting to do so until, at the very least, unemployment reached 6.5% (it is currently north of 7.5%).
He added that any change would depend on the economic data indicating the Fed could just as easily increase its bond-buying program.
Markets fell.
…could still go up!
It was as if market makers and traders were desperate for the market to fall as trending upwards is too much like good news and good news has to end at some point so it might as well be now.
It is the same with the fall in the Japanese stock markets. It seems like there is just too much good news around Japan at the moment, with even “Abenomics” looking dangerously like it might actually work, and work sustainably.
On Wednesday night the Nikkei fell by 7.3%, apparently spooked by weak Chinese economic data. So nothing to do with domestic government policy, but closely linked to the sentiment over a survey (another sentiment indicator then…) pointing to potentially lower Chinese manufacturing numbers.
Yet one slightly alarming reaction to all this was from a private client portfolio manager who I met at the end of last week. Having been in the office first thing on Thursday morning, he then spent a couple of hours at a conference and was concerned that he should have been back in the office to react to the fall in the Nikkei.
Why? He is a long-term investor, surely, and not a trader? Did you make any portfolio changes as a result of the market moves?
The Nikkei 225 is up 50% so far this year; the S&P 500 is up nearly20%; the FTSE 100 up 16%. Year-to-date numbers are a rubbish guide to future investing, but not quite as rubbish as making a buying decision on the back of an overnight performance of an exchange on the other side of the globe.
Reacting to the Nikkei fall, a colleague of mine eruditely commented: “Whoop-de-do”. Wise words…
