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.
Markets hope for the best but they also plan for the worst, and right now their focus is squarely on the latter. It’s no coincidence that European stocks have fallen this week just as many of their home nations prepare to meet rising infection levels with further restrictions.
Investors are increasingly afraid not just of the virus itself, but also of the measures their governments use to combat it. Having seen the impact that lockdowns had on consumer confidence over the spring, it’s no surprise that they’re fearing the worst amid reports of new restrictions.
Germany’s DAX index fell 1.8% this morning after suggestions of new measures including the closure of bars and cinemas, while France’s CAC fell 2% in gloomy anticipation of President Macron’s speech this evening, in which he is expected to announce a national lockdown.
Overall, European markets are now at a five-month low after falling for a third day in a row. Not to be outdone, the FTSE 100 has fallen to a six-month low this morning, meaning the index has shed round 25% of its value this year.
It’s a confusing state of affairs, and it’s not helped by everything else happening this week. In the US, most of the major tech stocks announce their Q3 earnings. The news from these companies - which include the five largest on the US S&P 500 - could have a significant bearing on investors’ portfolios across the globe.
And it’s not just tech in the spotlight - global banks, oil and pharma companies are also posting results this week. Throw in a certain election as well and it’s no surprise that investors are looking nervous and markets volatile.
But the thing to remember about volatility is that it’s just that - volatile. We could be looking at quite a different situation come the end of the week if those companies’ results are positive (the signs are good - around a quarter of S&P 500 companies having already reported and more than 80% of them have beaten estimates by an average of 18%), and something else entirely depending on the result (or lack thereof) of Tuesday’s presidential election.
As such, the most prudent way to cope with the recent onslaught of market volatility may be to shut out the immediate noise and keep your focus on the long-term (by which time all this will hopefully be well confined to the past). As many learned this summer, it can be painful to sell out of your investments as soon as the going gets tough only to see markets eventually recover.
Rather than selling off, volatility now may in fact present opportunities to buy in. Back in August, it appeared that we had reasons to be cheerful - infections were down, lockdowns were lifted, and it looked like the worst was behind us - and while investors’ hopes picked up, so did stock markets.
Our expectations have since drawn in along with the nights, and our nerves are currently being reflected in market prices.
One way of looking at the UK market is to say that it’s at its lowest in six months - another is to say it’s at its cheapest in six months. The UK, and to a lesser extent Europe as a whole, has been pushed out to a pariah status while markets like the US’ and China’s have hogged the limelight. The UK is severely out of favour, but, as Tom Stevenson puts it in his most recent Investment Outlook, the time to get interested in a market is when everyone is familiar with the bad news.
It can be hard to filter out the confusion, but just as market falls come unexpectedly, so do the sudden rises. A vaccine, for instance, may not be the answer to all our problems, but it certainly should help. It makes sense to stay invested and ride out the volatility if you can.
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. 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.
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