Return to Crisis: Things Keep Getting Worse

The virus that spread to stock markets around the world and nearly destroyed the global financial system in 2008 has reemerged with a vengeance sending global equities deep into the red and wiping out more than $5 trillion in market capitalization in less than two weeks. On Tuesday, before the opening bell, major market index futures in the US plunged more than 400 points signaling another violent day of selling ahead.   Worries that a slowdown in China will impact global growth pushed Asian and European markets deep into negative territory while US futures indicate that the Dow Jones is headed for its ninth triple-digit day in ten sessions. The deluge of bad news has battered confidence in the Fed and “sent global equities to their worst monthly slump in more than three years”.  Millions of Mom and Pop investors have sold out already and are headed for the exits. Here’s a recap from Bloomberg:

“Mom and pop are running for the hills. Since July, American households — which account for almost all mutual fund investors — have pulled money both from mutual funds that invest in stocks and those that invest in bonds. It’s the first time since 2008 that both asset classes have recorded back-to-back monthly withdrawals, according to a report by Credit Suisse. 

Credit Suisse estimates $6.5 billion left equity funds in July as $8.4 billion was pulled from bond funds, citing weekly data from the Investment Company Institute as of Aug. 19. Those outflows were followed up in the first three weeks of August, when investors withdrew $1.6 billion from stocks and $8.1 billion from bonds, said economist Dana Saporta. 

“Anytime you see something that hasn’t happened since the last quarter of 2008, it’s worth noting,” Saporta said in a phone interview. ….Withdrawals from equity funds are usually accompanied by an influx of money to bonds, and an exit from both at the same time suggests investors aren’t willing to take on risk in any form.” (“Fed Up Investors Yank Cash From Almost Everything Just Like 2008“, Bloomberg)

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