Stock markets, as well as some family holidaymakers, experienced a roller coaster August.
The traditional holiday month proved to be anything but quiet on the world’s investment markets.
Inevitably the downward trends attracted more attention, particularly the fall in US share values on 13 August. “Dow drops 800 points” is a headline that newspaper editors find hard to resist. ‘Dow falls just over 3%’ would have been equally accurate, but 800 points sounds considerably more dramatic.
Several factors challenged the markets in August:
* Short-term interest rates look set to fall further in the US (where the first cut in ten years took effect at the start of the month). Elsewhere there is less scope to cut as rates are so low, but central banks are hinting at other measures, such as a return of quantitative easing.
* Long-term interest rates also continued to fall, often deeper into negative territory. In the second half of the month the German government sold a 30-year bond which paid no interest and guaranteed investors aloss of 0.11% a year, if they held the paper until 2049.Tumbling and negative yields are seen by some commentators as an indicator that a recession is looming.
* The trade war between the US and China reignited, with a new round of tariff-by-tweeting from President Trump. In response, the Chinese allowed their currency, the Renminbi, to weaken, with knock-on effects for its neighbours.
* The Brexit saga ratcheted up in the UK and Europe, as the new Prime Minister Boris Johnson adopted his ‘do or die’ stance to 31 October and announced a provocative prorogation of Parliament ahead of the deadline.
As with any roller coaster ride, the experience can be both exhilarating and nauseating. It is by no means clear when this particular trip will end, but – again like the roller coaster – it could be highly dangerous to jump out before the journey finishes.
The value of your investment can go down as well as up and you may not get back the full amount you invested.
Past performance is not a reliable indicator of future performance.
Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.
The contents of this article is for information purposes only and represent the opinion of Pryor Portfolio Management Limited only. No action should be taken on the basis of this article alone. We always recommend you seek more detailed independent financial advice before taking action – feel free to contact us at any time.