The FTSE 100 slumped into correction territory yesterday as the stock market sell-off sparked by fears of rising interest rates in the US spread around the globe.
In New York, the benchmark Dow Jones extended the 800 plus-point fall it recorded on Wednesday night, falling another 545.9 points to close at 25,053.8, down 5pc in two days.
Britain’s blue-chip FTSE 100 index had tumbled 1.9pc to close at 7,006.9 as London took its cue from Wall Street to hit a fresh six-month low.
It is the index’s second correction of 2018 - a fall of more than 10pc from an index’s 52-week high. The Stoxx Europe 600 index, which tracks the top stocks across the continent, dropped to its lowest level in 20 months.
Fears that the Federal Reserve will be forced to rein in an overheating American economy have been fuelled by strengthening growth and inflation indicators in the States.
The benchmark US 10-year Treasury yield has hit its highest level in seven years amid investor expectations that the central bank will maintain a brisk pace of interest rate rises well into 2019.
The US president doubled down on his criticism of the Fed as the S&P 500’s slide spilt over into a sixth straight day, the broader index’s longest losing streak during his presidency. Donald Trump warned that the central bank’s policy tightening is “far too stringent, far too fast”.
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Market analysts also in part blamed this week’s tech-led sell-off on more signs of corporate earnings in the US being impacted by Mr Trump’s trade war. Before the week’s sudden plunge in US tech giants’ share prices, it had begun to feel as if the only way was up. The tech-heavy Nasdaq index, which surpassed its dotcom-bubble peak only three years ago, had risen more than 60pc since then, beating the wider stock market boom.
Within that, the world’s biggest tech companies had done even better. The FANG+ Index, a group that includes the big five of Facebook, Amazon, Apple, Netflix and Google’s owner Alphabet, as well as Alibaba, Baidu, Twitter, Tesla and Nvidia, had jumped by a fifth this year alone. Apple and Amazon had both hit valuations of more than one trillion dollars, and the industry’s moguls had become the world’s richest men: six of the 10 most valuable billionaires made their fortunes in tech.
This week’s market panic, though, hit Silicon Valley harder than most. Money being pulled out of equity markets tends to have an outsized effect on tech companies, since they have been the most reliable source of returns in the low-interest-rate world. Much of the post-financial crisis tech boom has been driven by yield-hungry institutional cash flowing into Silicon Valley venture capital. Rising government bond yields mean that is not guaranteed to continue.
Tech companies that rely on debt were particularly exposed by the plunge on the prospect that it might be harder to raise funds in future.
This article was written by James Titcomb and Tom Rees from The Telegraph and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to email@example.com.
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