Volatility in the markets

‘Stock Markets plunge!’

‘The day after the Big Sell-off!’

‘Volatility grips world stock markets as FTSE 100 bleeds £50bn’.

Just a few of the quite dramatic headlines have been produced from the last few days volatility in the global stock markets. It is, however, rare to see similar headlines describing billions being added on to the FTSE 100. As we all know, bad news sells, and journalists – whether they are economic, political or showbiz editors – know this and play on the human behavioural traits to focus on this.

By adding the colour description ‘black’ to the day, simply adds to the drama – Black Monday in 1987, Black Tuesday in 1929, Black Wednesday in 1992, Black Thursday in 2010; although Black Friday is used on a day that hits our pockets more than the stockmarkets!

Whilst not wanting to dismiss the events this week, it appears unlikely that we will have another crash as much of the global economic data is relatively positive. Indeed it has been suggested that the positive wage growth being seen in the US triggered the falls seen on Friday as ‘fears’ of rising inflation and therefore interest rates grew.

Cutting through the noise these headlines create, equity markets have performing exceptionally well at the beginning of 2018, adding to strong returns in 2017. Whilst the 4.5% fall in the US on Monday was the sharpest for some time, it actually only took the market back to where it began the year. Tuesday saw the Dow Jones rise 2.33%. However this doesn’t make such dramatic headlines!

So what can we expect going forward? Whereas the crashes of the past have been surrounded by negative economic data, the global outlook – on the whole – remains cautiously optimistic, albeit with plentiful headwinds. Whilst we have enjoyed low volatility in the markets for some time, this week’s events will perhaps serve as a not-so-gentle reminder of how markets should perform and a correction of this nature was due.

Whilst a fall in markets is never welcome, the natural human reaction of fear and worry should be counterbalanced with a reminder of why your money is invested, the relationship between risk and reward and the medium to long term view of performance rather than on a day to day basis.



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