FTSE loses 5 to trade in Bear Market territory

The FTSE 100 lost as much as 5% in early trading, reversing an early rally to trade well below the psychologically important 5000 level, weighed by more losses in the key mining, oil and banking stocks, and now officially entering levels that would dictate stocks were in a bear market.

The FTSE 100 has now lost 20% in one month’s trading, which is a severe fall in prices, wiping billions of the value of key companies in what can only be described as a sell stampede.

FTSE trades in bear market territory
The FTSE 100 crucially hit levels early this morning that would mark a 20% reversal from the year highs, and subsequently put the UK index into bear market territory. Should the FTSE close below the 4884 level, which marks a 20% loss in value from February’s 6105 highs, this could signal a longer term bearish trend for the UK Index.

Once again, we have seen an early price rally aggressively sold into and this makes any market rally in the future all the more fragile as investors may continue to use rallies as opportunities to exit stocks at higher levels, before they fall once again.

Any rallies seen in the market will likely have huge question marks hanging over their longevity. So far most market rallies have been incredibly choppy and heavily sold into. This shows a lack of sincerity behind price rallies and investors continue to show signs of panic and running for the hills.

All eyes to the Fed tonight – double edged sword?
All eyes will now be on the Federal Reserve tonight, which must instil a bit of confidence in the market and tonight’s FOMC decision gives it the perfect platform to do so. However, there remain concerns that the Fed have limited options to ease market tensions and any lack of definitive action or disappointment in tonight’s announcement could trigger yet more selling in the market. Tonight’s FOMC decision is therefore a double edged sword.

UK data adds to market woes
Data out today emphasised the precarious state of the UK economy with both Industrial production and manufacturing figures both badly disappointing to the downside, putting yet more tension over a potential slowdown in UK GDP. Manufacturing output fell 0.4% in June, when a rise of 0.2% was expected, whilst industrial output was unchanged, with the markets expecting a rise of 0.4%. The reaction for stock markets was a continuation of the selling seen over the early part of the morning and it was indeed the factory data that forced the FTSE 100 into bear market territory. The pound sterling also saw heavy selling against the US dollar, with the cross pair falling from 1.6376 to 1.6317 within minutes of the data being announced.