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.
Some days you’re not sure where to look. Like London buses, all the market-moving news comes along at once. It’s hard to think clearly when there’s so much noise.
For once, Super Thursday looks like a reasonable moniker. There are six key drivers of stock markets at the moment - Brexit, the US election, earnings season, economic growth, central bank policy and the Covid pandemic - and all six of them are in focus.
Today sees the first real indication of whether the world’s biggest economy is really bouncing back from the near heart attack it suffered in the April to June quarter. The first cut of third quarter GDP data in the US is due today. Expectations are that activity will have recovered by around 7% after a 9% fall in the prior quarter.
Over here, the spotlight will shine on Christine Lagarde at the ECB. Central banks have been a key support for the world’s economy, slashing interest rates and buying bonds to keep yields low and borrowings affordable. No-one expects any big announcements today but look out for hints of what’s to come in December.
If you think that Brexit has gone quiet, that’s an illusion. When negotiations get serious between the EU and UK, the diplomats enter what they call a ‘tunnel’. It’s a tacit agreement to suspend the media grandstanding for a short while so some proper talking can get done.
That’s what’s happening now as the clock ticks down towards Brexit D-Day at the end of the year. The hard compromises are being thrashed out. The ones that will, or won’t, allow a deal to be announced at the eleventh hour.
As for the US election, here too time is running out to persuade last-minute waverers. Around 60 million voters have already cast their ballot thanks to a surge in postal votes and attendance at early-voting centres. That may be important next week because it could delay the announcement of a winner. The result might depend on votes that are not even counted until Tuesday.
The experience of 2016 means no-one is going to rely on the polls this time. But the news flow on the pandemic and the economy are also pointing towards the first one-term Presidency since George Bush Sr failed to get re-elected in 1992.
The Biden poll lead has been consistent for a while now. The more important question than who occupies the White House for the next four years may be whether or not Congress is aligned behind the next President. That will determine whether the next President is able to push through his policy agenda.
The real reason we should think of today as Super Thursday, however, is the deluge of company reporting as third quarter earnings season gathers pace. Bellwether stocks are announcing results on both sides of the Atlantic. In the US, four of the five biggest technology stocks - Apple, Amazon, Alphabet and Facebook - are due to report today. That matters to investors, because those five companies (including Microsoft, which reported on Tuesday) account for more than a fifth of the value of the entire S&P500 and have been responsible for perhaps a third of the rally in stocks since the market low in March.
The vulnerability of the stock market to this handful of shares was highlighted yesterday as the S&P 500 index fell by 3.5%. That dragged the overall global stock market nearly 3% lower, its worst performance since June.
Sometimes it is hard to pinpoint exactly why shares move sharply up or down. But this time you don’t need to look much further than the final key market driver - the Covid pandemic.
The infection rate is rising steeply in both Europe and the US. That’s a human tragedy, as intensive care beds become scarce and health services struggle to cope in the run up to Christmas. It is a potential economic problem too. The cost of supporting economies through the first phase of the pandemic was high enough. Now we face a hefty follow-up bill as the winter wave takes hold.
Investing through periods of market volatility is a test of our nerve. It is easy to stay invested when the value of your portfolio is steady. Much harder when it is falling.
At times like these, it is important to remember a few key truths:
• The price of an investment is not the same as its value. Sharp moves up or down reflect investor sentiment not a real change in what your investments are worth.
• Trying to time market movements is not worth the effort. Human psychology being what it is, you are certain to miss the moment to reduce your holdings or, just as important, to re-invest after a fall.
• Being out of the market during a recovery is as bad as being in it while prices are falling. Anyone who failed to get back into the market in March is kicking themselves.
• The best time to invest is when it feels hardest to do so.
• No-one rings a bell at either the top or the bottom of the market.
• It is unusual for all asset classes and geographical regions to respond in the same way to the same events. A well-diversified portfolio will give you a smoother ride.
• With the benefit of hindsight, events always look simpler, less scary and more predictable.
• In the long run, markets have risen. To benefit from that, you must live through the short run.
More on Coronavirus and volatility
Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. 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.