Stocks slump as troubles mount

Stockmarkets have suffered the worst selling and volatility spell since the panic of late 2008. By Monday night, the FTSE All-World Index had lost 15% in just over a fortnight. Major indices, including the FTSE 100, slipped into bear market territory, down by 20% from their latest peak in May. The S&P fell by 6.6% on Monday. Stocks steadied after US Federal Reserve chairman Ben Bernanke promised to keep interest rates at near 0% for two years and hinted at more quantitative easing, or money printing.

Ratings agency Standard & Poor's decision to downgrade the US's triple-A credit rating spurred selling, as did the endless euro crisis. The European Central Bank bought some time by buying Italian and Spanish bonds.

What the commentators said

"We believe the bull market that began in 2009 is probably over," said Andrew Engel of Leuthold Group. The outlook is certainly grim. One cause of panic has been the existential crisis in the eurozone, "where leaders have been behaving like headless chickens", said Alex Brummer in The Daily Mail. Given that Europe moves "at a pace that would shame snails", as The Economist put it, nobody believes that policymakers will finally get ahead of events. Welcome to "the euro crisis, part 394".

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The S&P downgrade, by contrast, was hardly unexpected and thus not something to "hyperventilate" about, as David Rosenberg of Gluskin Sheff pointed out. But it was an important reminder that "the screws have been tightened on the fiscal stimulus front" and that there is no scope for any more stimulus.

That reinforces investors' main worry: that poor recent data, especially in the US, shows we are heading back into recession, while the authorities have no more ammunition to fight the downturn. Towering debt rules out stimulus packages and central banks have already slashed rates to zero. Money printing hasn't made much difference to growth and could be highly inflationary.

Investors have finally come to realise that the recovery in the developed world is not self-sustaining: after a debt bubble bursts, the economy is fragile and prone to relapse. Just weeks ago, markets looking forward to recovery "could see an oasis across the desert", said HSBC's David Bloom. Now they have "woken up to the fact" that they were looking at a "mirage".