The stocks sell-off in Britain continued on Thursday, leaving the FTSE 100 (^FTSE) on track for its worst week since 2016.
The index of Britain’s 100 biggest listed businesses closed down 0.6% on Thursday, following a 3.2% fall on Wednesday. The FTSE 100 had trading down as much as 1.2% earlier in the session but managed to par back losses before the close.
The FTSE 100 has now declined by 4.7% so far this week and, barring a massive rally on Friday, looks set for its worst weekly performance in three years.
Fears over faltering global growth initially sparked the sell-off on Wednesday and these continued on Thursday. Markets globally sold off sharply after US service sector data showed slower than expected growth, fuelling fears of a possible recession in the US.
”Another day, another sell-off,” said Alan Custis, head of UK equities at Lazard Asset Management. “Economic data remains weak, US employment data did markets no favours this afternoon. What may be different today is that Sterling is appreciating by nearly 1% versus the US dollar.”
About 70% FTSE 100 company earnings are booked in dollars, meaning a weak dollar hurts sterling-denominated share prices.
Despite the short-term volatility, US investment bank Jefferies pointed out in a note sent to clients on Thursday that the FTSE 100 historically delivers average returns of 3.6% in the fourth quarter of the year. The index has a 73% probability of positive returns in the quarter, Jefferies said.
“The FTSE 100 index is still up for the year and volatility is still very subdued by historic standards,” Russ Mould, investment director at stockbroker AJ Bell, said. “Quiet equity markets tend to provide better returns than choppy ones – but unusual calm can lead to unusual risk-taking, which in turn leads to over-exuberance, poor capital allocation and eventually volatility’s return with a vengeance as poor (or simply over-valued) investments falter and confidence finally cracks.”
Oscar Williams-Grut is Yahoo Finance UK’s City correspondent. He covers banking, fintech, and finance for Yahoo Finance UK. Follow him on Twitter at @OscarWGrut.