Laith Khalaf, financial analyst at AJ Bell, comments on today’s market sell-off:
“It’s surprising it’s taken markets this long to take fright at the second wave of the pandemic, and the havoc it might wreak on the global economy. The writing has been on the wall for several weeks now, but stock markets have had their blinkers on.
“Even the mighty US stock market, which has reached record highs in the face of a global economic slowdown, finds itself in the red. This is a broad sell-off, with almost no stocks in the market making positive ground, which tells us it’s a classic risk-off reflex.
“Until the virus is contained, there can be no clear direction for markets in the short term. We can expect sharp sell offs and relief rallies in line with the ebb and flow of the virus, and the unfolding economic damage it leaves behind.
“So far corporate earnings have held up relatively well considering the challenging backdrop, but what remains to be seen is the longer term effect of social restrictions on the global consumer economy, and how that feeds into company profits.
“Unlike the US market, which is coming off a record high, the Footsie is around 25% below its pre-pandemic level. That means a fair amount of bad news is already baked into prices, though clearly things may yet get worse before they get better.
“As ever, periods of volatility are no time to be a hero. Investors shouldn’t bet the house on the short-term direction of the market one way or the other, it’s a coin toss. Longer term markets will recover, so it’s important not to sell up in panic. As for putting money into the market, doing it bit by bit spreads your entry point and means if the market dips further from here, you have some dry powder to buy cheaper shares.”
