LONDON – World stock markets nosedived for a fourth day running on Tuesday, having seen nerves about higher interest rates and overcooked valuations wipe $4 trillion off what just eight days ago had been record highs.
Europe’s main bourses were down around 2.5 percent and Wall Street futures pointed to more losses too as “fear gauges” of market volatility leapt to their highest level since a surprise devaluation of China’s currency in 2015.
The flashing warning signs left investors with little option but to seek traditional refuges such as gold and the dollar. Benchmark government bonds — ironically one of the initial triggers for the selloff — also gained.
Commodities remained gloomy too, with oil and industrial metals all tumbling backwards as the year’s stellar start for risk assets rapidly soured.
“Playtime is officially over, kids,” analysts at Rabobank said. “Rising volatility painfully reminds some investors that one-way bets don’t exist.”
The equity market selloff had been viewed by some as a healthy correction after a rapid run up over the last year, but as it snowballed through Asia and Europe and looked to be on its way back to Wall Street, nerves were starting to fray.
Europe’s drop sent the region’s STOXX 600 to its lowest level in six months while the losses for MSCI’s widely tracked 47-country world index broke $4 trillion as its drop since Friday neared 8 percent.
Wall Street’s Dow Jones and S&P 500 benchmarks had slumped 4.6 percent and 4.1 percent on Monday, their biggest drops since August 2011. It was also the Dow’s biggest fall on a pure points basis of all-time and put it in the red for 2018.
There was intense trading activity, with the average daily volume on Europe’s blue-chip STOXX 50 already easily surpassed by the middle of the session.
The euro STOXX volatility index, Europe’s main gauge of market anxiety, saw its biggest spike since the Sept. 11, 2001 attacks on the United States. The better known Wall Street VIX, screamed above the 50 mark.
“This is not the end of the bull market, but it is the end of the super low volatility regime,” said David Lafferty, Chief Market Strategist at Natixis Investment Managers.
“The last two days of trading has thrown a giant bucket of cold water on the short volatility trade and I think we’re now in for prolonged period of elevated volatility generally.”