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Stop The Markets – I Want To Get Off!

Last year, any newcomers to stock market-related investments may, quite justifiably, have wondered what all the previous fuss had been about.  Global markets, with few exceptions, all delivered steady growth.  No scares, perfectly harmless, everyone left smiling.  This year so far however, has been rather different; more of a gut-wrenching roller coaster experience with big climbs and intense falls.  The FTSE 100 Index opened the year on 7,725 points before falling in mid-February to around ,6800 – a 12% correction in half as many weeks – and that was just the UK.  In the US, the S&P 500 Index has tracked up or down by more than 1% on no less than 28 trading days so far this year (15 increases and 13 drops) and, for good measure, the Dow Jones Index fell by more than 1,000 points not once but twice in just a few frightening days in early February, the two biggest point declines ever.  Indeed, five out of the biggest fifteen drops for the Dow in its history have now taken place during 2018 – and we are not yet half way through the year.

So why have markets become so volatile and has the time now come to disembark the roller coaster and bank precious gains?

The answer to the first question is undoubtedly connected to global politics.  As well as fundamental economic input and statistics, markets are also driven by sentiment & greed and trade tension between the United States and China (but also more recently Canada, Mexico and Europe) has been a big contributor to market mood swings, as indeed have worries about rising interest rates and inflation.  For the UK, the uncertainty surrounding Brexit negotiations has also further undermined market confidence. So should investors stay or go?  Despite all the volatility, the Dow is down just 0.7% this year, and the S&P 500 is flat, as is the FTSE 100. Stocks have made some big moves to essentially go nowhere.  In these conditions, ‘value’ fund managers will hopefully find opportunities that are not readily prevalent in conditions where market growth is benign and steady and will often out-perform their counterparts and respective benchmark indices during these periods, sometimes quite significantly.  Are investors therefore focusing too much on political turmoil as a negative for the market?  Only time will tell but as long as interest rates remain contained, earnings growth should be sufficient enough to push the market to even higher highs later this year, both in the US and elsewhere.

Sometimes investors have to hold their nerve and grit their teeth, which isn’t always easy but volatility may work in your favour.  It’s not time to get off the roller coaster – at least not yet.

This entry was posted on June 20, 2018