In case you hadn’t noticed, stock markets across the world have been experiencing some wild gyrations (Financial Adviser speak for plunging) over the past week or so. The US markets have suddenly woken up to the fact that a trade war with China is probably not a good idea and that the Federal Reserve is intent on increasing interest rates to cool the US economy. President Trump has said he thinks the Fed has ‘gone crazy’, pots and kettles anyone? He did also say that the large falls in markets over the last couple of days have been expected, as markets cannot keep going up unchecked and I wouldn’t disagree with him there.
The UK markets, which are already being constrained by uncertainty over Brexit, are not immune from wider global concerns and inevitably they have headed south in line with the US and Asia. The FTSE 100 has now retreated to where it was in late March at around 7000.
In view of this continuing turbulence, I thought you might find the following article interesting; it is by Heidi Chung, a reporter at Yahoo Finance:
“Initially, lower-than-expected Consumer Price Index (CPI) data sent interest rates lower and stocks higher in early trading on Thursday before stocks pared those gains and took another dip lower.
This comes after a brutal session on Wednesday, when the S&P 500 (^GSPC) tumbled more than 3% — its worst one-day drop since February — and the Dow (^DJI) fell more than 800 points. The S&P 500 is now on pace to close in the red for the sixth consecutive day.
But one market strategist says not to fear the market volatility in October.
“October should be known for volatility, as no month has seen more 1% changes (up or down) for the S&P 500 Index going back to 1950,” Ryan Detrick, senior market strategist at LPL Financial said in a note on Thursday.
Volatility is normal in October, according to LPL Research (LPL Research, FactSet).
The S&P 500 actually had one of its least volatile third quarters in history, and had gone 74 consecutive days without a 1% move, so some type of volatility was likely, according to Detrick.
These kinds of pullbacks are normal, he says. “Even though stocks tend to average a 7%–8% gain each year, they also tend to have three to four pullbacks each year (5%–10% drops) and at least one 10%–20% correction. We got both earlier this year, but history tells us we may get more,” Detrick said.
He attributes the recent volatility to the upcoming midterm elections and the spike in interest rates but remains optimistic.
“Given the fundamentals, we expect the markets to weather this recent volatility, and we see potential for a year-end rally,” Detrick explained.”
As a reminder, we have recently added some presentations to the website, which I hope you will find helpful in gaining a better understanding of our approach to investing. Please just click on the titles below and you will be taken to the relevant presentation. Hard copies of these are available on request.
As always, if you have any questions on this subject or indeed on any other finance related matter, please do not hesitate to call me.
With kind regards,
Graham Ponting CFP Chartered MCSI