Why are global equity markets experiencing volatility?
Mark Slobom, member of the Harpenden financial planning team and Chair of the Lonsdale Investment Policy Committee said:
'It is really important to put the recent equity market volatility into context. The declines we are experiencing in global equity markets follow several months of positive performance from the US equity market which set new records during the summer after the falls experienced at the start of 2018. The US central bank raised US interest rates in September 2018 and more interest rate increases are likely. Companies have benefited from this low interest rate environment but investors get concerned when company borrowing costs increase. In addition the IMF has warned that any trade war between China and the US could harm growth and this is also affecting sentiment adversely.’
‘Despite the recent volatility in equity markets we are still positive on the outlook for global economic growth and any volatility should be viewed within the context of recent equity market gains. Most equity markets have provided excellent returns for investors since the financial crisis. According to research from JP Morgan, since 1980 the years when the S&P 500 has produced a positive full-year return have resulted in an average maximum drawdown of 11%. (in other words at some stage during the year there was a fall of up to 11%). However, 2017, was the exception when the US equity market was particularly strong but there was minimal equity market volatility. Our clients are understandably concerned about the current equity market volatility but what we could be experiencing is a return to more ‘normal’ market conditions. We always recommend our clients maintain a long-term perspective when they invest, and we prepare them for short-term setbacks and this type of volatility.’
For more information read: Simon Prestcote - What to do in times of market volatility