Current Market Volatility
A News Filter For You
It is sometimes frustrating when news outlets glorify what is happening and ignore the broader perspective. Let’s start with a roundup of recent financial developments, filtered for you:
| UK and Europe | US | ASIA |
|---|---|---|
| The Bank of England cut rates on 1st August by 0.25%, the first rate cut since 2020. This follows the European Central Bank. Keir Starmer is yet to announce any concrete proposals on taxes or pensions, but we expect them. Local markets have held up reasonably well, with rate cuts generally cheered by investors. Local bonds are also holding up and offering diversification benefits. | In a busy period, the Federal Reserve is very likely to cut rates in September, especially given recent evidence of a weak jobs market. The US election is also twisting, with Kamala Harris hitting the lead in recent polling. Finally, US tech companies are experiencing a correction after running hot earlier this year. Again, bonds are providing a ballast. | Japan is making headlines, with the Bank of Japan rising interest rates unexpectedly. This has triggered the Japanese yen to rise quickly and Japanese stocks are extremely volatile. Other emerging markets, including China, have had a bit of a challenging run but are holding up better amid the volatility. |
On face value, it appears that bigger up and down days in markets (or vice versa) are upon us. However, this is not a sign of a broken market—it is very typical of what happens when investors are trying to digest new information quickly. It won’t last forever and won’t get in the way of us achieving your financial aspirations.
It is also worth noting the nature of setbacks. They are often a reversal of what has already run a little hot. For example, the Nasdaq in the US (an index of technology companies) fell by over 10% when it hit the headlines but was still up over 10% for the year. We can see a similar pattern across the globe. (Source: Morningstar Direct, from 9th July 2024 to 5th August 2024. Past performance is not indicative of future returns).
One key aspect we’d like to highlight is the benefit of diversification. With equities facing a patch of recent volatility, bonds have offered a ballast. This is by design. The economy and markets can change path, sometimes quickly and unexpectantly, which is exactly why we invest across a range of opportunities that complement each other. Our aim is to pursue a steady path that seeks to maximise returns without taking excessive or unwanted risk.
This highlights the folly of market timing and in particular cashing up during a market setback. In this sense, cash can feel safe but is a poor diversifier amid rate cuts (as its value does not increase, unlike the way high-quality bonds often do) and cash rates can quickly lag behind inflation.
Changes That Can Benefit You
Turning to actions, this could become a great opportunity to add value in the pursuit of your financial desires. To do that, you will hopefully find the below helpful:
1) Don’t try to pick the exact bottom of any market correction - and don’t expect us to either. Markets don’t work this way. As Peter Lynch famously said in his book Learn to Earn, “Far more money has been lost by investors trying to anticipate corrections than lost in the corrections themselves”. From all our analysis and knowledge, the best approach is to stay the course and invest consistently. The key is to understand probabilities and keep your money at work over long time horizons.
2) Consider interest rates. It is exciting for many to know that interest rates have finally been cut for the first time since 2020. Specifically, the Bank of England cut rates on 1st August by 0.25%. Overwhelmingly, the expectation is that interest rates will be reduced further in the UK this year,
along with other countries including the US. Regarding your financial position, we are here to help you here. Timeframe is important and we can help calculate the best approach for you, such as paying down debt or adjusting contributions.
3) Stay focused on your goals. We have a financial plan in place to help you achieve what is important to you. If you’d like us to review your projections and planning, please get in touch. This will help you to stick to the plan – and please remember that changes in markets are part of the journey to achieving those goals.
4) See the positives in this. I’d like to end by sharing a Warren Buffett quote that I love whenever the market wobbles: “Every decade or so, dark clouds will fill the economic skies, and they will briefly rain gold. When downpours of that sort occur, it’s imperative that we rush outdoors carrying washtubs, not teaspoons”. The key here is that volatility creates opportunity. Above all else, we are with you on this journey.
As always, we are very happy to help. Please let us know if you have any questions.
As noted previously, this document is intended to support your service proposition to clients and the commentary does not constitute investment, legal, tax or other advice and is supplied for information purposes only. Past performance is not a guide to future returns. The value of investments may go down as well as up and an investor may not get back the amount invested. The information, data, analyses, and opinions presented herein are provided as of the date written and are subject to change without notice. Every effort has been made to ensure the accuracy of the information provided, but Morningstar Investment Management Europe Limited makes no warranty, express or implied regarding such information. Except as otherwise required by law, Morningstar Investment Management Europe Limited shall not be responsible for any trading decisions, damages or losses resulting from, or related to, the information, data, analyses or opinions or their use