It’s the sort of stock market event which causes the Daily Express to proclaim that billions have been wiped off the value of our pensions.
The FTSE 100 index of leading UK company shares closed down 189.31 points, or 3%, at 6,159.51 yesterday following plans by the US Federal Reserve to ‘taper’ their programme of quantitative easing later this year.
Chinese economic figures also contributed to the sell-off.
It means that the index is now back at levels last seen in January. It was the largest daily fall in the value of the FTSE 100 since September 2011.
Falling by 10% since the end of May, the index is now firmly in ‘correction’ territory.
It had previously been posting strong gains on the back of easy money from central banks, gaining an impressive 16% in the first five months of the year.
Thankfully things are a lot calmer so far today.
Despite losses in Asian markets overnight, the FTSE 100 is up 78.08 points (1.27%) as I type this.
It’s natural for investors to consider buying opportunities after a short-term market drop of that magnitude.
Because tapering of quantitative easing in the US by the Fed is dependent on positive economic data, we will hopefully see a happy balance between a strongly growing economy and withdrawn easy money.
Whether the withdrawal of QE will have a bigger impact on investor sentiment than a growing global economy is yet to be seen; early indications since the Fed started hinting at a tapering of their asset purchases suggests it could have.
With most investors we work with taking the long (or very long) term view of investing, short-term market volatility like this should pose little concern, particularly when a well diversified portfolio allocated across the main investment asset classes is held.
Keep calm and carry on investing is usually the smart course of action.
There is quite a close correlation as things stand between equity and bond assets, which is less than desirable, although something we hope to see fade away in time.
