Global equity meltdown costs investors $2 trillion

The month-long slide in global stocks has wiped out at least $2 trillion in wealth, leaving investors few alternatives to preserve their holdings aside from bonds and money markets. Investors have been dumping stocks, commodities and emerging market assets on growing concerns that economic growth will suffer from higher inflation and interest rates. "It is essentially one consistent story worldwide, starting here in the U.S. There is a fear that the Fed's repeated commitment to limiting inflation demonstrates a willingness to risk economic activity," said Christopher Low, chief economist at FTN Financial in New York.

Stock markets have been punished since the U.S. Federal Reserve raised interest rates for 16th time in a row on May 10 and issued a hawkish statement saying it may need to do so again to fight inflation. Investors had expected some sign of an end to the tightening cycle. Global markets have suffered since, and strategists show little agreement about how deep and how long the sell-off will go.

The Dow Jones is off 8.2% since mid-May and has erased its gain for the year. The Nasdaq is off 12.75% from its high for the year on April 19 and the S&P500 Index has fallen by nearly 8% from its May peaks. On Tuesday, Tokyo's Nikkei booked its biggest one-day percentage fall in two years, tumbling 4.14%, wiping out more than 16.56 trillion yen ($145 billion) in market value. It was the biggest one-day point drop since immediately after the 9/11 attacks.

Given the drop-off markets, analysts said investors should now seek quality. Tom McManus, chief investment strategist with Banc of America Securities said investors should look at "steady companies with strong earnings and geographic diversification." These shares have been out of favor since about 1998, he added, and are the kind of companies Warren Buffett has been known to own - companies with top-quality balance sheets and diversified earnings streams.

The global sell-off, however, is not over and may only be just starting, according to JPMorgan Chase & Co.'s global equity strategist Abhijit Chakrabortti. "This is nothing compared with what we may see late in the summer and early October - once slower growth finally sinks in and expectations for higher benchmark rates, at 6% or even more, come out."

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