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2019 so far: investors winning in bumpy conditions

Ed Monk

Ed Monk - Fidelity Personal Investing

Markets have begun the second half of 2019 on the front foot, rising in response to an apparent warming of trade relations between the US and China.

2019 so far: investors winning in bumpy conditions

The tussle between Donald Trump and Xi Jinping has been a dominant theme for global markets this year and the latest more peaceful tone was struck as the leaders met and shook hands at the G20 summit in Osaka last week.

Markets across Asia and then Europe have risen on Monday in response to the news - even if recent experience suggests that the goodwill probably won’t last long. The US President, in an impromptu televised phone call to Fox News last week, threatened to expand his trade war to Europe - as one front closes, another one opens?

In a way, the market’s willingness to look on the bright side has been a hallmark of 2019 so far. Global stock markets - represented by the MSCI World Index - are up more than 10% so far this year despite a long list of worrying news. To the trade wars you can add Brexit, an assumption of tighter monetary policy and a general slowing of the global economy.   

The bond market is also flashing red, in the sense that long-dated bonds are yielding no more than short-dated bonds, suggesting the market expects very little growth or inflation in the years ahead. That threatens an inversion of the yield curve which some academics say is a precursor to recession.

And yet stock markets grind higher.

Surveying all this it would be simple to conclude that shares are headed for a fall. They may be, of course, but it’s worth remembering that the start of this year coincided with the bottom of a trough for markets. The gains we’ve seen this year largely reverse losses seen in the second half 2018, and we’re now at a level in line with the long term trend - albeit we’ve arrived here via a more bumpy route.

The lesson of the first half of the year, then, is perhaps that volatile markets are now the norm - or at least more volatile than we have been used to recently. Volatility doesn’t have to be a bad thing if you stick to some sound investing principles; investing for the long term and diversifying your assets. This will help you ignore short-term bad news and provide some ballast against the most violent market moves.

It’s also a bit easier to handle market falls if you know you’re going to benefit from lower prices, which is what happens if you are able to phase your investments over time. If prices fall, you’ll just get more for your money when you buy in next month.

Most importantly, the first half of 2019 is a lesson in why staying invested - providing you’re happy that risk assets and the stock market are an appropriate home for you money - tends to be the best strategy over the long term. If you had heeded the worst warning at the start of the year, when markets had just plunged for three months and pessimism was at its fiercest, you would have missed out on the recovery that has taken place.

Important information     

The value of investments and the income from them can go down as well as up, so you may get back less than you invest. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.