The largest US stock market fall in eight months has likely caught no-one by surprise and is instead evidence of its resilience, according to fund manager Fidelity International.
The tech-focused Nasdaq Composite plunged more than 4 per cent, which is the largest one-day decline since June 2016. Meanwhile, the S&P 500 dropped by 3.3 per cent, its worst day since February.
According to Fidelity International head of asset management Asia-Pacific, Paras Anand, the sharp sell-off in the US has likely caught no-one by surprise.
He said that, if anything, market participants have been wondering how, in the face of tighter money, a tighter labour market and rising oil prices, the US has continued to be so resilient.
“There are myriad explanations but to my mind, the price action of 2018 reinforces the idea that both active investors and the growing constituency of passive and systematic strategies have been long-momentum and short-volatility,” Mr Anand.
“In other words, concerned about an uncertain political and economic outlook, investors have chosen both asset classes and sectors which appear to offer more robust fundamental prospects and have demonstrated more predictable price action.”
Mr Anand said the concept of value has become secondary to the focus on the bumpiness of the path.
“The converse of this is that you have seen significant falls in parts of the market where uncertainty is high – Global Emerging Markets, China and the UK being good examples – all of which are now trading at low valuations relative to history,” Mr Anand said.
“Given the medium-term outlook for the global economy remains robust and the gradual withdrawal of monetary stimulus is a sign of a return to more normal conditions, it feels like the right response for investors to signs of the US market finally losing momentum is hunt out the value in areas that have already been aggressively sold down.”