Global Market Sell-Off: Three Counties View

Monday saw the US Dow Jones Industrial Average index close 4.6%, a fall of 1,175 points.  This in turn spread throughout Asia as the Japanese Nikkei 225 index fell 7.1%, tracking the sentiment of the US market.  As I write, the UK FTSE 100 is down 1.77% at 7,206.

There may be many reasons for this; as we have reiterated to all our clients, global stock markets have been particularly buoyant over the past few years, with most hitting all-time highs almost daily.  Markets cannot go one way forever, hence our most recent changes to our investment portfolios to increase the levels of lower volatility assets as a diversifier away from equity risk.

However, what appears to be the main reason for this US based sell off is better than expected economic figures.  Whilst the White House continues to reassure investors that its sole focus is on “long term economic fundamentals, which remain exceptionally strong”, economic news from the US has been stronger than anticipated and as such, the market correction has been caused by positive economic news.  How can this be?

On Friday, the US Labour Department released employment numbers which show stronger than anticipated wage growth.  Directly from this arises the question of the imminent rise of interest rates and the stock market sell off highlights a change in market thinking.  As such, it could be suggested that investors have begun to take profits from assets that have performed exceptionally well to reinvest into those at a lower entry point.

This is not a collapse of the economy.  This is not an indication that markets are not going to continue to do well.  This is a concern that the economy is actually doing much better than anticipated or expected and as such, the market is re-evaluating that fact.

Yet bad news sells and the press is having a field day with this.  There will no doubt be greater levels of short term volatility within the market over coming days.  However, economic fundamentals must always be considered as primary amongst all others, especially those that form from an emotional reaction.  Investors have been rewarded handsomely over recent years; this current market dip, like the tides of the sea, is an expected reality.

As ever, if you do wish to speak to me or another of my colleagues, please do not hesitate to do so.

Andrew Alexander

Director and Head of Investments

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