Funds for the stock market sell-off

October is historically the most volatile month for investment markets but the latest sell-off looks more than the usual Autumn wobble. A perfect autumn storm continues to batter markets. Worries over the state of the European economy, a strong dollar, a sluggish China, geopolitical tensions, US economy appearing weaker and falling inflation are driving markets down, as shown in the chart at the foot of the page.

But markets were long overdue a healthy correction and a reality check and by historical standards the current sell-off is not exceptional. What makes this correction interesting is that compared to other recent corrections cyclical stocks (those most sensitive to the economic cycle) are getting hammered while defensives have fared better.

Cracks are appearing in the US economic recovery,  and therefore global growth. The underperformance of small caps this year were a warning shot – they provide early indicators of economic weakness.