Stockmarkets shrug off turbulence

Stockmarkets have hit their first bout of turbulence of the year, but most are clinging onto January’s gains.

The rampage of the Reddit bulls has made more conventional investors take cover. America’s S&P 500 had its worst week since October, closing down 1.9% last Friday. Perhaps most tellingly, the CBOE VIX volatility index, the stockmarket’s “fear gauge”, registered its biggest weekly gain since June last year. The index had stayed beneath 25 for most of the period since Biden’s election victory, but finished last week at 32.4.  

For many institutional investors, the spectacle of “retail investors piling into particular stocks” and pushing prices to absurd levels brings back uncomfortable memories of the dotcom bubble, says Rupert Thompson of Kingswood. The drama helped global shares lose almost 4% last week, erasing their gains for the year so far. 

The “skirmishes” between hedge funds and Reddit’s “vengeful legions” may have seized the headlines, but financially speaking the whole thing is a rounding error, says Cormac Mullen on Bloomberg. The shares being shorted in the likes of GameStop and other hedge-fund targets amount to “less than 0.001% of the $43trn stockmarket”, according to figures from Barclays. Yet with US equity valuations so high, anything that makes people forget their “greed and fear” and consider “prudence” is salutary.  

Markets have hit their first bout of turbulence of the year, but most are clinging onto January’s gains. China’s CSI 300 is up by 4.4% so far this year, while America’s S&P 500 has climbed more than 3.5%. The major laggard has been Europe, where Germany’s DAX has gained just 0.7% for the year. After a strong start the FTSE 100 is marginally down. Therein lies opportunity: British stocks, as MoneyWeek often points out, are trading at a discount to their global peers, and are worth scooping up. 

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