As we are sure you’ve heard on the news, Investment Markets have fallen heavily over the past two days after some strong wage growth data in the US led investors to ponder interest rates rising faster than expected in the US.
It’s important to note that the falls have only given back gains made in the past month and markets are broadly flat for Calendar Year 2018. It’s also very important to note that market changes of 2% plus per day are not that unusual; it is just that during the 2016/17 years market volatility all but evaporated.
Investment Markets will not peak simply because they have been rising for an extended time (although they will have periodic pullbacks). If the economy and corporate earnings remain strong this will flow through into share prices and dividends and nothing has changed to alter this view in the past week.
Our view has been and remains:
- We were well overdue a short term correction in markets
- This pullback could continue in the short term
- The global economic cycle remains very attractive for equity markets and we continue to expect 2018 to be a reasonable year for returns
Volatility is part of a healthy functioning market and in fact a necessary enabler to facilitate returns over time. We welcome a more normalised volatility regime where active management will assist your portfolios in navigating and capitalising upon the opportunities that volatility creates.
Whilst Monday night’s move in the US has accelerated the down move somewhat we hold with our view that both increased volatility and ‘healthier’ stock valuations are part and parcel of a normalised equity market environment.
We will keep you informed of further developments but if you would like to receive further detail, please do not hesitate to let us know.
– Tim Scott CFP® & Mark Ford CFP®
6 February 2018