Approaching Uncertainty in the Market

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Will recent Stormy Swells In Global Markets Affect long-term Investors?

We often see fluctuations in the market, sometimes significant. However, this is to be expected while investing. It’s never a welcome feeling for those with long-term investments, however, it’s not usually something to panic about. Following the volatility earlier this year, we now face a second phase of higher volatility. The reasons behind the more recent shifts in the markets are greatly discussed, with focus on global bond yields, the US-China trade war, Brexit and currency.

What’s Causing The Uncertainty?

Global economics have been on a general upward trend for a number of years now, while keeping inflation and interest rates comparatively low. Sustained accommodative policies from central banks have kept global asset prices stable. These factors have allowed companies to grow their market values during a period of record low market volatility.

Strong economic progress from the US leads to indications of interest rate rises, pushing prices down and bond yields up. Compounded with the ongoing trade war, we can see potential political destabilisation and contribution to inflation changes. Predicted future earnings expectations along with higher rates of inflation and costs of borrowing could cause a selloff of shares. Higher risk assets become less attractive to investors if they are seeing better yields from their less risky assets.

What we’ve seen this year is that in times of added uncertainty investors have sought additional compensation to hold equities. Higher equity risk or lower earning multiples sees a lower valuation.

Considerations For 2019 And Beyond

Something to bear in mind as we head into 2019 is that markets often change direction. Positive growth in economies such as the US do not always mean good things for investments. Relatively healthy financial conditions, a stronger economy and gradual interest rate raises may be seen as favourable, but recent activity in market prices tells a different story. It’s dependent on the global factors at play and the implication of market data.

Tighter financial conditions should be exercised in a controlled manner. Too sharp of a turn and there is a risk of derailing global economies. Investors should remain confident in holding a diverse and well-rounded portfolio, with acceptable risk for their circumstances.

We find ourselves in our current nine-year long period of growth and many predict that is coming to an end. Market experts generally predict a fall after a long period of growth. Though the global overtone doesn’t fully support that hypothesis. Some of the tell-tale signs of consequential market downturns are yet to appear. Inflation is at levels central banks would like to see, in some cases below that level, and we are yet to see a period of elation in other financial markets that we typically see before any significant change.

Don’t Panic, Simply Assess Your Options

With such heavy media focus on the stock markets during falls, it is important to take a step back and assess your investment rationale. Key things to pay attention to are the outlooks for corporate earnings as well as the stances of the major central banks. Although there is a general sense of optimism on the markets, particularly owing to lower valuations, we remain watchful.

During times of high market volatility, it is often most wise to remain at the sidelines rather than actively participating in trading – market falls are often followed by bounce back. Panic selling may compound losses if the intent is to reinvest, and as a result, the point of market re-entry can be difficult to gauge.

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