Don’t get spooked by the stock market correction
We look at the facts after another tough week for markets.
2 min read
We may have seen more market volatility last week but, crucially, the all-important US economy has stayed in good health and the chance of a recession remains small. In our view the case for long-term investing is still sound.
Lower company earnings forecasts, Brexit uncertainty, upcoming US mid-term elections and the Italian budget have all contributed to a dampened market mood. As a result, we’ve seen stocks slide in Asia, the US, and the UK where the FTSE 100 reached a seven-month low last week.
But the most important economy of all – the US – is still in good shape. And what happens in the world’s biggest economy matters for the world economy.
Although the consensus among economists is that America’s GDP growth will slow over the coming quarters, the rate at which it is expanding remains healthy. Company profits there continue to rise, inflation remains subdued and there is still no sign of an imminent US recession – all of which support investing. Also, the US Federal Reserve’s monetary policy broadly still supports the economy.
Sven Balzer, Coutts Head of Investment Strategy, says, “It is difficult to keep a distance and look at the bigger picture when there is so much negative news flow in markets, but it is important to do so.
“There are some concerns out there for investors but it’s good to keep in mind that markets tend to get overly pessimistic quite quickly when expectations change.
“The correction we are seeing at the moment remains just that – a correction. Signals of an imminent recession remain low.”
The corporate picture in the US actually looks decent despite the recently reduced profit forecasts of some companies. As of last Thursday (25 October) just over 160 S&P 500 companies had reported their financial results for the third quarter of 2018 and, overall, profits were up 23% year-on-year, with sales rising 8%.
Earnings are more mixed in the rest of the world, however, highlighting the economic divergence we have seen this year as growth has continued apace in the US while slowing elsewhere.
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