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12 October 2018

Market turbulence: Patience is a virtue!

James Andrews, Director – Head of Investment Management, on this week’s global market volatility

Global equities and bonds fall
Global equity markets have, for the second time this year, shown that they can be volatile. On Friday morning (12th October 2018) the FTSE All-World ex-US was down 17% from its January peak while the S&P 500, which had remained a bright spot, also succumbed to drop more than 7% from last month’s record level. However, this time, equity markets have been joined by a bond market sell-off. In fact, it was last week’s spike in the US 10-year Treasury yield (the global ‘risk-free’ benchmark rate) which rose to a seven-year high of 3.25% that triggered the wider sell-off we have seen over the last few days.

A perfect storm
Clearly, higher interest rates have been the driver for bond yields rising in the US and this will increase the cost of borrowing for both consumers and businesses there, which can lead to concerns that growth will be hampered going forward. Furthermore, to compound matters we have had the International Monetary Fund (IMF) revise down its global growth forecasts this week as it cited concerns over the escalating trade tensions, stress in emerging markets following the strong run in the US Dollar, and Brexit here in the UK. President Trump should perhaps look at his negotiating tactics with the likes of China before he does too much finger wagging at the US Federal Reserve for raising interest rates.

The longest bull market since World War II
The recent sell-off should, however, be seen in the context of the very strong run in equity markets since the financial crisis. In fact, in August, according to the S&P Dow Jones Indices, the bull market that began in March 2009 became the longest on record since World War II as the S&P 500 has risen more than 300% since that low. The current correction in light of this very strong run is in our eyes exactly that, a correction that was perhaps due given the headwinds mentioned above.

The case for patient investing
Short-term volatility is not unusual in public markets; it is important to remember that investing is for the long term and that the longer you remain invested the greater the likelihood of both positive and significant returns. While in the short term there are factors that could see further volatility (Brexit for one), there are many reminders out there to focus on what is important: long-term objectives rather than short-term noise. As ever, we remain vigilant, but with the knowledge that patience is most definitely a virtue in the world of investing.

Ends

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Please note, investments and income arising from them can fall as well as rise in value and you may lose some or all of the amount you have invested. Past performance and forecasts are not a reliable indicator of future results or performance.
 
Market turbulence: Patience is a virtue!
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