All the main stock markets globally suffered significant falls over the last few days. This spoilt a long period of calm where markets have gently and steadily moved up.
For example, the last time there was a sell-off of any significance was over two years ago, which was a 3% correction. In essence, we have all been spoiled as normal market behaviour is one where prices routinely move more than 1% in a day.
After saying this the sudden fall was a rout and resulted in share prices moving down by nearly 10%. This fall was led by the US market, but came after a sustained and strong rise brought about by two positive factors; firstly, many large US corporations were reporting bumper profits and secondly, Trump has managed to get his plan of cutting the rate of Corporation tax in the US through the Senate.
It’s not surprising then, that after strong rises there is going to be some profit taking.
It is also the case that the US economy is growing fast now – so fast that wage rises have picked up and this has caused concerns that inflation could take off, with a resultant increase in interest rates to keep prices in check. Whether or not inflation becomes a problem remains to be seen. The valuation of some elements of the US markets also causes concern. The big technology companies (Tesla, Amazon, Facebook etc) all trade at elevated levels and may well be priced for a fall.
We are mindful of these issues, but are also well aware that no one can predict the short-term direction of markets. Our experience is that a well-diversified portfolio which is set up to meet a customer’s risk tolerance and objectives is the best way to maximise long-term returns.
When one zooms out in the context of achieving a long-term financial plan, the current type of market movement is a minor bump in the road.
If you would like to speak to us about how the markets might affect your financial planning, please don’t hesitate to get in touch.