Stock market selloff turns into a rout

Chris Beauchamp IG

Selling is all the rage across markets this afternoon, and heavy losses have been seen across stock markets in the US and Europe.

Monday picks up where Friday left off
Downside momentum picks up throughout the day
But strong start to earnings season points towards a temporary blip

A warm day in London has seen the FTSE 100 take a bath, dropping almost 200 points this afternoon and on course for its largest one-day loss since April of last year. Continental European indices are similarly on the back foot, with the Dax and CAC off by 3% as the session grinds towards a close. US indices are in full retreat as well, as the deteriorating breadth of last week finally begins to register in the indices themselves. Bull market or not, today’s price action is a reminder that things can turn ugly quickly when everyone decides to head for the exit, with weeks of gains wiped out in the space of a couple of sessions. Momentum had been tilting to the downside for some time but the edifice had held relatively well in recent weeks, seemingly-oblivious to the worsening situation in Europe and supported by a good start to earnings season. But the dam has broken today and could signal some more weakness in the sessions to come.

But before we all drag out the Q1 2020 analogies, the year has been a quiet one overall, and VIX spikes such as the one we have seen today have not really lasted long. There is always the chance that it will turn into something more dramatic and prolonged, so dip buyers need to be careful, but with the aforementioned earnings season pointing to a continued bounceback in corporate activity it seems unlikely that the selloff will be anything more than a temporary interruption to the rush back into equities for most investors.

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Chris Beauchamp

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