It's not easy to hold your nerve as you watch share markets plunge – but 'don’t panic' really is good advice.
The latest sell-off in share markets appeared to be prompted by a US jobs report on Friday, 2nd February which showed stronger-than-expected wages and employment growth. That raised expectations that bond yields will rise faster-than-expected and that prompted fears the US Fed would raise interest rates.
But there was no particular piece of news that could reasonably have caused the sell-off. There’s not much wrong with the US or global economies. The wheels are not coming off. The market just got spooked and some technical factors contributed to this.
Shares’ record run
The falls have been dramatic but not that significant compared to how much shares have gone up in recent years. Shares have enjoyed a very good run, including 15 consecutive monthly gains to January 2018; unprecedented since before 1970.
The major global benchmark (MSCI World) was up by almost 60% between early 2016 and the end of January 2018 and this most recent bout of volatility has simply returned the index to mid-Jan levels. In that context a market correction was probably overdue.
We think the prospects for economic growth in the major economies including Australia and New Zealand remain bright in 2018.
Bond yields could continue to rise further and inflation is expected to rise in most economies over the next two years; though not to levels that would prompt aggressive interest rate increases and sharp rises in bond yields, which might lead to more significant declines in share markets.
What should I do?
Don’t panic. Do not make ‘knee jerk’ decisions that might damage your longer-term objectives.
Most investors are exposed to share markets to some degree so will be affected by these market movements, but if you are saving for retirement it is likely that it is a long-term investment and that means there’s time to make up any losses from volatility events.
If you’re heading towards retirement, now is a good time to get some advice on your investments. If you have any immediate concerns, don’t hesitate to contact us on 0508 637 237.