October- what a ride!!

Dr Shane Oliver- Head of Investment Strategy and Economics and Chief Economist, AMP Capital

AMP Capital Insights- 19 October 2018

 

 

Dr Shane Oliver- Head of Investment Strategy and Economics and Chief Economist, AMP Capital provided a great breakdown and insight into the market volatility experienced by investors this month. Below are a few extracts from the weekly updates that brings together a picture of market movements seen over the past few weeks.

 

October 5th to October 12th

Shares were hit by another bout of volatility with more likely to come, even though it’s unlikely to be the start of a major bear market.

Every so often shares go through rough patches. We saw this most recently in February on the back of US inflation and interest rate concerns, which saw US shares fall 10% and Australian shares down 6%.

Share markets fell sharply, led by the US share market primarily on the back of worries about rising interest rates and bond yields and the deteriorating US/China relationship. US shares lost 4.1%, Eurozone shares fell 4.8%, Japanese shares fell 4.6%, Chinese shares lost 7.8% and Australian shares fell 4.7%.

Bond yields generally declined though, reflecting safe haven demand which also benefited the gold price.

 

Given the ongoing worries around the US Federal Reserve (the Fed), inflation and bond yields, threats to tech stocks, the intensifying US/China conflict, rising oil prices, problems in the emerging world, the upcoming US mid-term elections, risks around President Trump and the Mueller inquiry and tensions in the Eurozone regarding the Italian budget, there could still be further weakness even though shares bounced.

And given the usual global contagion, most major share markets including the Australian share market will continue to be affected. However, we doubt it’s the start of a major bear market because history tells us that they invariably require a US recession and with US monetary conditions still far from tight, fiscal stimulus still impacting and no signs of the excess (in terms of over-investment, debt growth, etc) that normally precedes a recession, a US recession still looks a long way off. In turn, suggests that the trend in earnings and hence share markets is likely to remain up, beyond the near-term pull back.

 

October 15th to October 19th

Share markets bounced from oversold levels early, however, they fell back to varying degrees.

The US trade conflict with China, tech stocks and Italy’s budget deficit continued, along with tensions with Saudi Arabia regarding a missing journalist. This left share markets mixed.

 

Bull markets are characterised by relatively steady gains, punctuated by occasional sharp pull backs as investors periodically cut their long positions on the back on adverse news events. Consensus view remains that recent falls represent a correction, but of course it remains premature to conclude that we have seen the bottom, given the worry list around US interest rates, trade, oil prices, etc.

 

Share trajectory remains on the up, as global growth remains solid helping drive good earnings growth, and monetary policy remains easy. However, the risk of a further short-term correction is high given the threats around trade, emerging market contagion, ongoing US rate hikes and rising bond yields, the Mueller inquiry, the US mid-term elections and Italian budget negotiations. Property price weakness and approaching election uncertainty add to the risks around Australian shares.

 

 

Dr Shane Oliver provides a simple and concise summary of what may be impacting markets globally, eliminating a lot of noise and media hype. The full market updates can be found are at- AMP Capital

Rest assured that we have been monitoring our preferred funds and investment markets carefully this month, utilising market momentum readings and assessing many of the points Dr Oliver highlighted above and drawing similar conclusions. We remain cautious and expect market volatility to continue with continued slow tightening of monetary policies, strong global growth and earnings (still) keeping up with expectations.

If you do have any concerns or would just like to discuss the state of your investments please do not hesitate to contact us.

 

 

While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided.

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