Five days of market turmoil

Wow… what a week it has been for the markets. The term ‘Credit Crisis’ can now takes its place amongst the ‘Dot.Com bubble’, the ‘1987 crash’ and ‘Black Thursday’ as it will be a long time before the markets forget this week (or indeed the events that may still be to come).

On Monday the FTSE300 ended the day more than 20% down from its peak so we now officially have a ‘bear market’. With the US markets closed for Martin Luther King Day Europe and Asia continued selling into Tuesday until first rumours spread and then confirmation came from the Fed that they had decided to make the biggest rate cut since 1982 to prevent a huge sell off in the US.

Following the Fed’s intervention European markets were able to regain some ground, with Asia following suit early on Wednesday. Terrible results from Motorola and negative guidance from Apple sent worries of a slow down in consumer spending and the market downwards again.

Then for apparently no reason stocks started to rise. Traders were clearing coming to the view that panic had lead to the markets being oversold and were backing a bear market rally.

The markets in Asia continued to rally on Thursday before SocGen broke the news that a rogue trader had cost one of France’s biggest banks 4.9bn euros (as if this week needed more news!). Whilst the news of this huge loss was shocking the markets put a positive spin on the news in believing that it may help to explain the large falls earlier in the week.

Into Friday and the markets continued to regain some of the losses largely on the back of some reports in the US that unemployment was not as bad as feared. Whilst the markets seem to be on the path to recovery there is still a lot of uncertainty out there and that could drive further sell offs next week.

However if you look into share price moves in more detail it is the so called defensive stocks (those that might withstand a recession) such as utilities and healthcare that suffered the greatest falls at the end of the week, and technology stocks that rose the most. So in summary it is anyone’s guess what happens next, but see no reason not to expect more volatility.