White House seeks to calm nerves over stock market sell-off

The White House sought to play down the global stock market rout yesterday, insisting that the fundamentals of the US economy were strong and brushing off the recent sell-offs as a normal market correction.

Markets in the United States and across the globe underwent a third day of volatility, but much of the panic of Monday appeared to have eased despite heightened activity.

It followed a day of huge stock market falls on Monday, with US markets experiencing their biggest one-day decline since August 2011.

Wall Street closed higher on Tuesday with both the Dow Jones and the S&P ending the day up more than 2 per cent, thanks in part to a late rally.

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Earlier, the main European markets ended the session in negative territory. The Stoxx Europe 600 Index decreased 2.4 per cent while London's FTSE dropped 2.6 per cent and the main Iseq index in Dublin shed 1.4 per cent.

Despite the recovery on Wall Street, it was a day of extreme volatility on the markets as the Dow and S&P bounced between positive and negative territory throughout the trading session. As the opening bell rang on Wall Street, the Dow Jones crashed by up to 500 points, but clawed back up by mid-morning. At one point the Dow swung by more than 900 points in 25 minutes, while trading volumes were twice the average.

The most important numbers to focus on are the fundamentals – and the fundamentals of this economy continue to be very strong

Senior White House officials sought to calm nerves, with the treasury secretary, Steve Mnuchin, telling a House financial services committee that he was "not overly concerned" about the sell-off.

‘Very positive’

“You’ve seen a normal market correction, although large,” he said, noting that the Trump administration’s policies were “very positive for long-term economic growth”.

Vice President Mike Pence struck a similar note, dismissing the latest falls as "the ebb and flow" of the stock markets.

"The most important numbers to focus on are the fundamentals – and the fundamentals of this economy continue to be very strong," he said en route to Asia where he is due to attend the Winter Olympics.

The sell-off, which began on Friday, was prompted in part by concerns about inflation in the United States as the world's largest economy continues to perform strongly. While analysts are expecting several interest rate hikes this year, inflationary pressures could prompt the Federal Reserve to act more aggressively. The current market jitters coincided with the departure of Janet Yellen as head of the Federal Reserve. Her successor, Jay Powell, was sworn in on Monday. The sell-off also followed a period of exceptional calm on the markets.

Mirroring the volatility in New York on the Dow Jones and the Nasdaq, the Iseq swung heavily throughout the day. Just five Dublin-listed shares finishing the session in positive territory.

Heavy hitters

The main Iseq index finished the day down by just over 1.4 per cent on heavy trading volumes, closing at 6,658 points.

The Iseq's heavy hitters, especially those global stocks with major exposure to the US, all struggled. Building materials giant CRH fell 2.2 per cent to €27.60, Kerry Group fell by 2.3 per cent to €82.55, while insulation group Kingspan dropped by 1.4 per cent to finish the session at €35.40.

Ian Quigley, the head of investment strategy at Investec Wealth and Investment Ireland, argued the current volatility was "temporary".

“The context is that we have gone through a prolonged period of low volatility in the US. If volatility is low for a long period, it is always likely to increase at some stage,” he said.

But others, including Paul Sommerville of Sommerville Advisory Markets, warned that erratic trading could continue over the next 18 months.