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Making sense of market movements

We take a look past the financial headlines to the real picture

Topic: Investing

Browsing the latest financial news you’ll get a bleak picture of the global markets, with alarmist headlines proclaiming ‘stocks tumble’ and ‘markets tanking’.

But the situation, as always, is far more complex than a headline can convey. If you’re concerned about your investments, our jargon-free explanation may bring some reassurance.

What’s the latest market news?

There’s been a lot of volatility in the markets through October – meaning that fluctuations in value have been larger than normal.

Last night, the US and Asian markets in particular dropped significantly. First the major US indices (Nasdaq, S&P 500, Dow Jones) fell, cancelling out all 2018 growth so far, and the Asian markets followed their lead.

Markets fall when a large number of investors sell shares, marking a downturn in investor optimism. This is rarely driven by one issue, rather by the wider social and economic circumstances, which we’ll examine here.

Why did the US markets fall?

The conditions for this fall have been created over several months.

Recent Federal Reserve decisions have played a significant role; we’ve seen several interest rises, and a shift from quantitative easing (a process that introduces money into the financial system) to quantitative tightening (the opposite process, reducing money in the economy).

Trade tensions with China have also contributed, with the battle over high import tariffs affecting the economy on both sides.

Note too that US growth in 2018 has been stronger than expected until now, leading almost inevitably to an eventual drop.

Why did the Asian markets fall?

It’s the cumulative result of a multitude of factors. There’s the trade war mentioned above, slow growth in several major Asian economies, and a slump in the value of tech shares, to name a few. With no easy resolution to these issues, there’s likely more volatility to come in the rest of the year.

What’s happening in the UK and Europe?

It’s a similar situation. In the UK, the FTSE 100 hit a seven-month low. And European markets have been affected by conflict between the EU and Italy over the latter’s budget spending. But as of this morning, the UK and European markets were trading higher.

Should you be concerned?

One thing to note about the markets is that there’s no such thing as normal; a degree of volatility is always to be expected. Also, we consider investing a medium or long term approach. So while markets can see big rises or big falls over days or weeks, over years these fluctuations even out.

Remember too that with Click & Invest your investments are actively managed. With most online investment platforms your money is invested to track the markets, and it rises and falls as they do. Our approach is different in that we aim to beat the markets, both when they rise and when they fall. For example, with the expectation of a US markets drop, our team had already taken action to limit your exposure to US stocks, protecting your investment to a degree.

With our research team dedicated to monitoring the global outlook, you can be sure we’ll keep you informed on any future developments.

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