Dan Jones 

Sell-offs just aren’t what they used to be

Dan Jones

Dan Jones

The perceived wisdom about financial markets in August is seldom wrong. The quietest month of the year typically produces little in the way of genuine excitement. 

A small amount of skittishness is usually the best that can be mustered, blamed on the notion that senior personnel are on the beach, and the more junior team members don’t know what they’re doing. Combining this concept with some ill-advised data mining leads to the ‘sell in May and go away’ cliché. 

This year, as so often, there’s been no evidence of a sustained slump for equity indices over the summer. That didn’t stop a minor drop in August being initially characterised as a ‘sell-off’ in some quarters.

True, there have been plenty of potential catalysts for a serious slide: growing tensions between the US and North Korea chief among them. But the fact is that the moves seen last month did not venture close to sell-off territory.

While the S&P 500 index fell 1.5 per cent on August 17, this was one of just four down days in excess of 1 per cent all year – and it comes on the back of more than eight years of improvement.

This eight-year rally may be to blame for our shifting mindsets. Investors still scarred by 2008 have spent much of the subsequent period worrying about when the next crash will come. At the same time they have got used to volatility at record lows, major markets barely falling at all, and quick recoveries for indices when dips do occur.

A 1.5 per cent move may look dramatic in this context, but small dips like this are part and parcel of usual stockmarket behaviour, not causes for concern in themselves.

It is not like investors are wanting for action on a case-by-case basis. Take Provident Financial: its 65 per cent fall in August was behind only RBS in 2009 and Ashtead in 2003 in the list of the largest ever daily drops for UK large caps. 

Provident’s three-tiered package of bad news will be tough to repeat, but an increase in stock dispersion is one real change to market behaviour that has emerged over the past year.

This has been much welcomed by active managers for the perceived boost it gives to stockpicking strategies, but greater risks are the flip side of greater opportunities. 

The FTSE 100 is steady enough. Its constituents, priced for perfection, are vulnerable to huge falls if they disappoint expectations. A true market sell-off may yet emerge; in the meantime, there’s plenty of individual elements to keep investors occupied.

Dan Jones is editor of Investment Adviser

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