Although we haven’t received any calls, as we suspect most people are quite familiar with market volatility over the years, we thought this update would put some recent market movements into perspective.
Although we haven’t received any calls, as we suspect most people are quite familiar with market volatility over the years, we thought this update would put some recent market movements into perspective.
On April 2, President Trump announced his much-anticipated tariffs. The depth and breadth of the tariffs caught many by surprise, particularly regarding a base 10% tariff on all countries and what are deemed as ‘reciprocal tariffs’ which were used across a wider range of countries and came in at significantly higher levels than expected.
This exacerbated the risks of a global economic slowdown, with the probability of a US recession in the short-term rising sharply.
Of the major economies, China, Europe, and Japan were particularly hard hit, with China already announcing some retaliation whilst Europe and Japan are considering their options. Australia was one of the lucky ones, with only the 10% base line tariff applied.
Whilst it’s hard to gauge exactly what caught the market by surprise, some of the factors included:
This was against a market backdrop of lofty expectations regarding company earnings, particularly in the US, and lofty expectations regarding the US economic growth outlook.
Without promoting any political or policy view, the so-called ‘reciprocal tariffs’ are supposedly an intention to ‘even the playing field’ where other countries have tariffs / subsidies / trade barries in place. Given the long history and number of trade barriers in place globally, presumably it would’ve taken a long time and been a minefield to go after each and every single tariff one by one.
Instead, the US administration chose to create and use a particular formula with inputs including current trade deficits and total imports from each country respectively, to determine the tariff rate. We assume this is then subject to negotiation thereafter.
Market’s have dropped sharply, time will tell but this may be viewed in hindsight as an overreaction in the short term, as market’s often do, ‘throwing the baby out with the bathwater’. It is too early to make any call or judgement here. And seemingly the extent of either positive or negative sentiment will depend on many unknown factors, predicated around the response of other countries and any negotiations to be had.
Sharemarket’s have traded sharply lower in Australia and are expected to open sharply lower (circa 5%) for overseas markets throughout the day and overnight.
We continue to retain a cautious posture in portfolios whilst heightening our level of supervision and monitoring. This is the environment when we expect diversification to show its true benefits, along with active management (where applied / appropriate).
The outsized nature and wider application of US tariffs has resulted in a recalibration of expectations ahead, many of which aren’t particularly surprising. We would hope things settle as economies, businesses, investors and consumers take stock of what is now in place.
Whilst we expect the US administration to be tough in their negotiations, we hope to see more detailed and intricate negotiations settle on a more even / fairer playing field than would be expected today.
The graph below is a strong reminder that trying to time investment markets proposes a significant risk to long term wealth creation. It shows that over the last 20 years ending 2024, if you invested $100,000 into the US share market, and didn’t sell at any time (i.e. remained invested) this would have grown to approximately $717,000. Whereas if you missed the best 5 days (out of 20 years!) due to selling/transacting, this would have reduced to approximately $452,000 and missing more of the best days would result in a significant drop in returns. The best days on sharemarket’s often follow the worst days and it is very difficult, even impossible to time. Not to mention that in reality your portfolios are diversified across asset class, country etc. which are moving in different ways. History has shown that remaining invested is important.
Days like today, and weeks more recently, do present buying opportunities. For those investing cash, averaging into growth assets via Dollar Cost Averaging (DCA) can be a beneficial strategy to take advantage of volatility, allowing investing at lower entry points. These times also reaffirm why we manage portfolios with a conservative lens, with a dual focus on capital preservation (not beating an obscure benchmark) and market fundamentals (not momentum or emotion). Although often for new reasons, these periods of volatility are nothing new. Even over recent years we have gone through COVID (2020) and significant interest rate increases (2022) which saw global investment markets drop significantly, only to bounce back to an eventual recovery, as has occurred throughout history. Your portfolios are managed actively, with these scenarios in mind. For those who wish to speak with us, please contact us anytime. For others, it is a case of sitting tight in the knowledge of the points made above. And for those who wish to take advantage of the opportunity and consider investment options, please let us know.
It was a nervous start to the quarter for the Australian equity market (ASX 200), as the impact of China stimulus measures and implications of rising bond yields was being digested. The resources sector felt the brunt of this nervy start falling over 5% for the month of October, however the broader market did manage to reach an all-time high on the 15th of October closing above 8,300 for the first time.
2024 was a memorable one for investors, with asset prices powering ahead.
The year started with a bang, as the positive market momentum from the fourth quarter of 2023 spilled over into the new year, under the premise that inflation would fall sharply through 2024 enabling central banks to deliver large interest rate cutting programs.
The Australian equity market (ASX 200), although starting the quarter in good spirits and continuing to rally, driven by lower-than-expected inflation data and positive sentiment, witnessed an acceleration in market volatility due to various economic and political factors. This did not deter investors as the index made history on 17 July by surpassing the 8,000 mark and closing at an all-time high of 8,057. Off the back of positive momentum supported by optimism of interest rate cuts by the US Federal Reserve as early as September the benchmark delivered a strong quarterly return of +7.8%.