European markets suffered a rude awakening this morning as Japan’s Nikkei index fell, following a sell-off across the US on Monday.
The Dow Jones industrial average broke below the 25,000 level, wiping out gains made by the index over Janaury. This pushed Japan’s Nikkei 225 index to fall more than 1,500 points, which led the FTSE 100 to drop 3.5%.
Markets across Germany France, Italy and Spain were all down by more than 3% on opening.
But should we be worried, or is the market just overreacting?
We have gauged both selector and portfolio manager reactions from across the globe. From London, Fidelity’s CIO of multi-asset investments, James Bateman (pictured below), said despite markets having seen a pull-back over the last few days, in the long span of history, this is not news.
‘Yet in a world where the concept of a "correction" almost feels alien and where equities felt like an unstoppable one-way bet for a while, the normality of a setback can feel more painful. Holding this course as volatility eases won’t seem easy - but at this stage of the cycle, the money is made by keeping your head when others are losing theirs.
‘But what we have seen is perhaps the greatest sign of real health in markets for a long time. The tech-fuelled rally in the US had long lost any sense of reality in its valuations, the prospect of inflation remaining low forever could not last, and we have a new and untested Fed Chair. It would be more worrying if markets didn’t react to all of this.’
On Twitter, Advenis’ head of discretionary mandates, Lucas Strojny, said macro and micro trend is still very strong, with many investors waiting for an attractive level to buy.
There is probably nothing to lose to be more defensive and patient right now— Strojny Lucas (@lucasstrojny) May 9, 2017
However, UBS' Global CIO, Mark Haefele (pictured below), said a single-day decline this sharp could force further selling as some systematic strategies are forced into deleveraging.
'The rally in Treasury bonds reinforces the case for diversification, and holding assets uncorrelated to stocks. Investors should consider rebalancing strategies if their portfolio allocations have drifted away from their target ranges.
'While volatility may persist in the very near term, we remain confident that the bull market remains intact.'
This is while Credit Suisse's Global CIO, Michael Strobaek, said the equity bull market is still intact.
'We still consider the equity bull market to be intact and to have the potential to go further. Yet, as we have said on numerous occasions, the bull market is not going to be as good as what we saw in 2017, and it will be associated with high levels of volatility, as short rates and now yields have left their bottoms and are moving higher.
'Recent risk-off moves in equities do not shake our equities conviction. We see the latest developments as a healthy correction that offers a buying opportunity for clients who wish to deploy cash.'