US stock markets remain volatile following a violent correction in values that has hit financial markets across the world.
After the Dow Jones Industrial Average suffered the biggest one-day points loss in its 122-year history on Monday, stocks in Asia and Europe took further hits on Tuesday.
The FTSE 100 opened 3.5% lower but recovered some of those losses by the close. It ended the day 2.6% – or 193 points – down at 7141. That marked its lowest closing level since April last year.
It meant that almost £50bn of value was erased following a £27bn hit in the previous session, while other major European bourses fell in similar fashion.
Share price falls this month have been linked to market fears that stocks are over-valued – equities having been the main source for investor cash since the financial crisis at a time of record low borrowing costs.
But a key US jobs report on Friday, showing better-than-expected wage data, spooked sentiment because it raised the prospect of the US central bank raising interest rates at a faster pace to cool inflation.
It heralded the start of a correction rather than a crash, experts said, with investors betting on low market volatility getting their fingers burned as the so-called Vix measure of volatility hit levels not seen since 2011.
US stock markets dived by 2% on opening on Tuesday but entered positive territory just minutes later. The Dow Jones, S&P 500 and Nasdaq have been seeing swings between gains and losses ever since. Dow swings were of up to 1,000 points.
Neil Wilson, senior markets analyst at ETX Capital, said of opening on Wall Street: “The valuations were certainly looking attractive on a forward earnings basis, providing attract entry points for a number of stocks.
“Some deep-pocketed funds may have stepped in to hoover up what they could – in this context it looks for the time being like the correction was exactly what the market needed – although we have a long way to go today still and sentiment is still fragile after two bruising sessions.
“Meanwhile, as picked up elsewhere, there was a bit of a brutal unwinding of the short volatility trade that may be just about done.”
Financial stocks have been hardest hit worldwide.
On the FTSE 100 on Tuesday asset managers felt the most pain, with Standard Life Aberdeen, Schroders, Scottish Mortgage Investment Trust and Hargreaves Lansdown all falling around the 5% mark.
The decline in its value means the index is now 650 points below its record high achieved only last month.
Since the Brexit vote its fortunes had been closely linked to the value of the pound – with falls in sterling versus the dollar boosting its constituent companies with high dollar earnings.
However, sentiment was such that a third straight day of declines for the pound failed to prop up share values – with sterling standing at $1.3960 on Tuesday evening as the US currency built some strength.