The last quarter of 2018 has really begun with an investment bang and a rollercoaster ride of note for the financial markets, with hardly a dull moment to spare. International equity indices such as the Dow Jones have fluctuated wildly over the course of October and November, but overall it has not been a pretty picture with a downward trend most in evidence. In essence the global financial markets are experiencing some of their sharpest moves since the financial crisis of 2008/2009. The Dow Jones Index dropped significantly from their September peak values, only to partly rebound during the latter part of Oct and November.
WHAT HAS BEEN BEHIND THIS INDISCRIMINATE SELL OFF IN WORLD EQUITIES?
Political events have played their part. The trade war stand-off between a Trump led USA and China has shown no signs of abating. The effect of the emerging market troubles of Turkey and Venezuela has been felt far and wide. Not to mention the shenanigans of the Saudi’s on foreign soil. Uncertainty and political rhetoric around the US mid-term election have also added to the mix. All of these issues are not outright crisis in their own right, but taken together, they create uncertainty and the market does not like uncertainty.
But, by far the main factor behind the market turmoil, has been the strong line adopted by the US Federal Reserve in terms of raising rates to some degree of normality. During their recent plenary sessions they signaled a strong force of will to not appease popular opinion, i.e. do what Donald Trump wants. But rather stick to their guns in terms of implementing monetary policy, i.e. raising interest rates. This signals a firm end to the decade or so of cheap borrowings and has profound effects on both individual and corporate balance sheets.
After the strong market moves since the election of President Trump two years ago, there was always going to be a correction. Its just that nobody knew when, and what the catalyst would be. Stock market corrections are healthy and provide new investors with unique buying opportunities. The crucial thing for existing investors is not to panic but to stay the course and stick to their strategy.
Equity markets always recover, it is just a question of time. Long term investors have seen this movie before and will take a step back, relax and let the current turmoil run its course. Investors fortunate enough to have some cash in the kitty, should be open to some bottom fishing opportunities. After all, they will be buying quality stocks at a significant discount. The foolhardy investors will be those that panic and sell during this period of uncertainty.
Whatever you do, make sure that you are getting good solid investment advice over this period of volatility and uncertainty. Feel free to make contact with Activ8 and speak to one of our advisors.
