The IAG share price has crashed 7% today! Here’s why

On a bad day for stocks, the IAG share price is among the biggest fallers. Why is it down nearly 7% on Tuesday? And what hope is there for IAG to rebound?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Today has not been a good day for UK shareholders. As I write, the blue-chip FTSE 100 index stands at 6,956.94 points, down 166.74 points (2.3%) on Monday’s close. At its low today, the Footsie had slumped to 6,912.36. Obviously, some shares have done much worse than others in today’s stock sell-off. For example, the International Consolidated Airlines Group (LSE: IAG) share price is among the index’s worst performers.

The IAG share price slides 7%

As I write, the IAG share price stands at 195.42p, down 14.43p (6.9%) on Monday’s close. At this time, every FTSE 100 stock is down, but IAG is among the top fallers. It stands at #2 in this losers’ list, with only engineering firm Renishaw (-7.1%) falling harder.

What on earth has happened to make markets take fright and write down the IAG share price by nearly 7%? Like so many market scares in London, this one first took hold on the other side of the Atlantic. Yesterday, highly valued US tech stocks had a bad day, with the Nasdaq Composite index sliding 2.6%, one of its worst days since March. The US index is also having another down day, having dropped a further 1.5% as I write. Furthermore, it’s down 6% so far this month. But what’s this got to do with the IAG share price?

Markets are worried about inflation

The main reason for today’s price falls is the same as always: persistent selling pressure sent stocks southwards. And the shares that have flown highest in 2020/21 have tended to be those that fall hardest when investor optimism wanes. These include frothy US tech stocks, as well as the funds that invest in these firms. Some highly rated US stocks have fallen by 10% or more since last Friday. And given that the IAG share price reflects a market-sensitive and cyclical airlines business, it took a harder dive than most.

That said, it’s clear that shareholders in both London and New York are starting to worry about the threat of higher inflation (rising consumer prices). If inflation remains elevated for an extended period, then this might force central banks to tighten monetary policy. For example, the US Federal Reserve might lower its monthly bond purchases from below their current $120bn level. Or central banks might raise interest rates, triggering higher bond yields and lower bond prices. This would make shares in go-go growth companies look relatively less attractive, hence impacting their share prices. And it’s these worries — higher inflation leading to higher interest rates — that have hit the IAG share price today.

Would I buy IAG today?

Almost a week ago (on 5 May), I said that I saw room for the IAG share price to go higher on good news. Back then, the shares were trading at 202p. Right now, they are 3.3% cheaper, making them slightly lower-priced. However, as a veteran value investor, I am wary of highly rated growth and recovery stocks. With IAG having a horror show of a 2020, this richly valued share could be vulnerable in future market corrections. Although IAG might be a great proxy share for a post-pandemic boom, I’m going to pass on it for now. I’d need to see hard evidence of a turnaround in the skies before I’d back this FTSE 100 firm today!

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Cliffdarcy has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services, such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool, we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

Could the 9.8% M&G dividend yield get even bigger?

Christopher Ruane reckons that, although the M&G dividend yield is already close to a double-digit percentage, it could get better…

Read more »

Investing Articles

How much passive income could I earn by putting £380 a month into a Stocks and Shares ISA?

Christopher Ruane explains how he'd aim to turn a Stocks and Shares ISA into four-figure passive income streams each year.

Read more »

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Investing Articles

2 passive income stocks I’m buying before an interest rate cut

With the market expecting interest rates to fall in August, time might be running out for investors looking to buy…

Read more »

Investing Articles

If I’d bought Rolls-Royce shares a year ago, here’s what I’d have now

Rolls-Royce shares have been the big FTSE 100 success story of the past 12 months and more. And there's still…

Read more »

Young female analyst working at her desk in the office
Investing Articles

If the Dow’s heading for 60,000 by 2030, can the FTSE 100 index hit 12,000?

Strategist Ed Yardeni predicts a 50% rise for America’s Dow Jones Industrial Average over six years. Can the FTSE 100…

Read more »

Investing Articles

Is the National Grid share price a once-in-a-decade opportunity?

The National Grid share price looks like a bargain. But there’s much more for investors to think about than a…

Read more »

Investing Articles

Here’s why the Rolls-Royce share price should keep gaining!

The Rolls-Royce share price is up 185% over the past 12 months, but there are a host of tailwinds that…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

Buying 1,852 shares in this ultra-high yield FTSE 100 income stock would give me £1k a year

Harvey Jones is keen to load up on this blue-chip income stock that pays the highest yield on the FTSE…

Read more »