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!
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.