Sit tight: turbulence is normal
It’s been a tough month for markets but the underlying economy still supports investing.
2 min read
October has been volatile for investors but we see a solid global economy and positive environment for investors despite recent market turbulence.
The first week of the month saw stock markets sell off, largely based on market fears that rising borrowing costs in the US could dent company profits.
While market falls can be alarming for investors, we think there are reasons not to get too gloomy about such short-term shocks:
- Company profits are improving – US corporate earnings are expected to rise by 21% in 2018, according to US investment company Raymond James
- Employment is strong – the UK and US unemployment rates are at multi-decade lows, meaning more people have money to spend, which is a key driver of economic growth
- Central banks are making moves to raise interest rates and rein-in economy-boosting policies, and that shows a positive economic outlook – the US Federal Reserve alone has raised rates eight times since 2015
The missing tell-tale signs
Lilian Chovin, Investment Strategist at Coutts, says: “There are usually certain tell-tale signs that a severe market downturn is on the way but we are seeing no sign of them at the moment.
“For example, previous market slumps have been preceded by what market analysts call ‘euphoria’, when asset prices rise far beyond their worth creating a dangerous imbalance in markets. Currently, we do not see any such imbalance, partly because investors remain cautious.”
It’s important to remember that falls like those we have seen this month are based on short-term developments.
Markets will rise and fall day-to-day – that’s investing – but we at Coutts are long-term investors and encourage our clients to take a long-term view. This approach relies much more on economic fundamentals – the foundations on which markets sit – than market moods.
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