This week, the sun set in Tromso, Norway and will not rise again until 15th January. Although it is not quite as dark here, the current news flow is doing little to lighten the mood.
Against this backdrop, October saw the biggest stock market falls in over three years, with the index of large UK companies falling over 7%. Thankfully, our diversified approach to investing has yet again helped to cushion values; Investors in our Balanced model typically saw a fall of less than 2%, whilst the Defensive model was just 0.2% down on the month.
Why did the stock markets fall?
There was no fundamental reason for the fall, as shares still look to be offering some value at current prices. However, the catalyst for the fall was an announcement that came from the USA. The news was that the US economy is growing strongly and that as a result, interest rates may have to be pushed up a little higher than previously thought. This is basically good news – the world’s largest economy is doing well and interest rates, although rising are not anticipated to reach a level that will stop economic growth.
What will happen next?
We don’t know! Over the next few weeks, we will undoubtedly experience more turbulence, fuelled not least by the uncertainty of Brexit.
Talking of Brexit, the Bank of England have just produced a report showing the potential harm that a Hard Brexit could do to the economy. From an investment point of view, we are not unduly worried by this for three main reasons;
- All our portfolios are well diversified and not excessively dependent on any one asset class, including UK shares,
- A Hard Brexit would significantly weaken the Pound and this would give an uplift to the value of shares in large UK Companies (this is exactly what happened after the Referendum in 2016).
- All UK Banks have just passed a stress test and are deemed strong enough to survive a Hard Brexit.
Despite current market conditions, we recommend that medium to long term investors remain invested. The key to successful investing is to spend time in the market, rather than trying to time the market. If you are still aiming to be investing for the next three to five years, it is likely that the best strategy will be to sit tight and certainly not to sell out of markets at current levels.
Investment values will recover in the fullness of time, just as the sun will return to the people of Tromso.
The Next Step
If you would like further information on the above post or to discuss your own specific circumstances, please give our Investment Consultant Philip Bailey a call on 01462 687337 or email pbailey@provisio.co.uk.
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