Black Monday: What the current stock market turbulence means for your savings and investments

What has happened to the FTSE 100 and Nikkei 225?

The FTSE 100 plunged in early trading today after an expected global stock market rout started overnight, with Japan's Nikkei 225 index suffering its worst day since 1987.

The benchmark Japanese index plunged 12.4 per cent in the latest bout of sell-offs to shake world markets as investors fret over the state of the US economy.

Experts are encouraging investors to stay calm and not act rashly (file image). Picture: Fotolia.

The Nikkei closed down 4,451.28 points at 31,458.42 today. It comes on the back of a report, which showed hiring by US employers slowed last month by much more than expected, which convulsed financial markets, countering the euphoria that had taken the Japanese index to all-times highs of more than 42,000 in recent weeks.

European markets also opened lower, and darkening the outlook for trading on Wall Street, early today the future for the S&P 500 was 2.5 per cent lower, for example.

What does this mean in the shorter term?

Richard Hunter, head of markets at investment platform Interactive Investor (part of Scottish-headquartered investment giant Abrdn), this morning said the “torrid” opening UK markets experienced after “global waves of unease” was not a surprise.

Looking at affected stocks, including those particularly exposed to the US such as Pershing Square and Scottish Mortgage, he added: “It remains to be seen whether these reactions are overdone, as can often be the case until the negative momentum subsides, and whether there is also something of a buying opportunity emerging given that markets are prone to exaggeration in both directions on the back of a marked change of sentiment.”

Danni Hewson, head of financial analysis at AJ Bell, said: “Friday’s brutal sell-off has continued into the new week as investors mull the prospect that the much-touted US soft landing looks like being a whole lot bumpier than markets had hoped.” She also said: “For a UK economy struggling to find growth this chapter, particularly at this time, is a massively unwelcome one.”

What is the impact for investors?

Philip Dragoumis, director and owner at Thera Wealth Management, said it’s “not all bad news”. He added: “Bonds are going up, interest rates are going down, oil prices are falling, and gas prices are collapsing — all of which are helpful for the economy. If you are under 50, just keep calm and carry on buying. However, if you are heading up to retirement, not to worry. Speak to your financial planner — in all probability, everything is fine and you can still retire as planned."

And Joshua Gerstler, chartered financial planner/owner at The Orchard Practice, is encouraging people to keep a cool and rational head. “If you make a decision based on your emotions then you are more likely to make the wrong decision. If your portfolio has been designed to expect and cope with volatility in the market, then you can sit back and relax whilst others are panicking. If your portfolio is not designed to cope with volatility, and if you are feeling stressed at this time, then in all likelihood you have the wrong portfolio for your comfort levels."

Rob Morgan, chief investment analyst at Charles Stanley, echoed this, saying: “Sudden market turmoil after a calm period can reveal just how volatile certain investments in your portfolio can be. If this is a shock you weren’t prepared for it may be time to revisit whether you have too much in the most volatile assets.”

He also said: “At these times it is usually best to keep calm, stick to your investing plan and keep focused on the fact that sharp short-term moves should pale into insignificance over multiple years and decades. It’s rather like avoiding seasickness by keeping your eyes on the horizon rather than the rolling waves below. For what it’s worth, we believe a ‘soft landing’ scenario whereby the US avoids recession is still very possible, which may be supported by other data as it emerges in the coming weeks and months.

“If you are thinking about investing but are nervous of the current conditions, one way to counter market ups and downs, as well as take some of the stress out of investing, is to contribute money at regular intervals, say once a month, rather than a lump sum in one go. The advantage of dripping money into the market is that you don’t need to worry about market timing. The strategy can even turn market volatility to your advantage as you average down if prices fall further.”

“Striking the right balance between risk and reward is something every investor must consider and revisit periodically – it’s important that you make the most of your money, but without losing sleep over it.

What does this mean for the market in the future?

Stephen Innes of SPI Asset Management, said: "To put it mildly, the spike in volatility-of-volatility is a spectacle that underlines just how jittery markets have become. The real question now looms: Can the typical market reflex to sell volatility or buy the market dip prevail over the deep-seated anxiety brought on by this sudden and sharp recession scare?"

Chris Beauchamp, chief market analyst at online trading platform IG, said: "This is a perfect demonstration of what happens when everyone tries to sell at once. Such moves don't stop in a single day and we likely have a summer of volatility ahead of us, particularly as we await developments in the Middle East.”