City thinking, local knowledge

A month on from October’s stock market turmoil

By Dina Patel

A month ago, global stock markets were in turmoil and saw their worst losing streak for five years. Markets were hit by a cumulation of a US-China trade war, slowing growth worldwide and higher interest rates. The IMF downgraded its 2019 outlook for both the US and China, Amazon missed their revenue target and US crude oil fell steeply. A perfect storm for widespread investor panic.

Stocks fell sharply. US stocks suffered their worst monthly loss since 2011 and their biggest single day fall since the Brexit vote. This triggered a global sell off – markets on both sides of the Atlantic and the Far East dropped. Nasdaq lost 9% of its value during the month, Dow Jones fell by 5%, as did the FTSE 100.

A month on, things have stabilised slightly. Towards the end of October stock markets recovered some of their value and the results of the midterm elections in the US saw the S&P 500 and Dow surge.

There was a general consensus among investors and market analysts that a split Congress between the Republicans and Democrats was the best outcome for US and global equity markets. There are expectations that Trump’s business friendly policies will continue and that Democrats in Congress will provide a check on the president’s more disruptive market actions.

Globally this caused a positive reaction because of the large impact US stocks have on global equity markets.

In Europe, things responded positively to election results. On the day results were released, the FTSE 100 closed 76 points higher – a rise of 1.1%. Of course, much of British stocks’ performance over the next few months depends on the outcome of Brexit negotiations. If they go badly, there could be a major sell-off, while a strong deal with the EU could see them rise.

Heading east, how the People’s Bank of China reacts to China’s economic downturn and the effects of US protectionism will have a large bearing on markets in the Far East.

Whether the world’s most populous country will continue to be financially prosperous will have a profound effect on the global economy. Even after the results from the US midterm election came in, China’s Shanghai Composite index continued to lose ground.

As of now, it would be unwise to throw caution to the wind. JP Morgan have said that markets are likely to remain jittery until the end of the year. The G20 meeting, which many hope will de-escalate the trade war between the US and China, could just result in a lot of hot air, rather than a burying of the hatchet. Trade war uncertainty looks likely to continue for the near future.

Much of the focus will remain on central banks. In the US, the Fed is trying to normalise interest rates whereas the ECB will have to decide whether it can really raise rates in the middle of 2019 if core inflation rates are still languishing at their current levels.

Having said all this, on the whole, markets are performing better than they were a month ago. What’s more, there is a chance that last month’s fall could have had a positive effect by taking some of the air out of US stocks which are valued incredibly highly after the longest bull market in history.

Volatility is to be expected and is factored in when discussing individual client portfolios, but if you have any concerns or questions do not hesitate to get in touch.

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