Weather the storm

October can be a turbulent month for financial markets and recent weeks have proved no exception. Over the last fortnight the FTSE 100 index has lost nearly 5% in value and, despite a rally at the end of last week, has resumed the decline today. Some investors have become understandably concerned by this recent volatility. We would like to reassure clients that, although turbulence can unnerve even the most-seasoned investor, corrections are part and parcel of how markets behave. Our view is that short-term sentiment and events are, in many ways, ephemeral, as they are difficult to predict. Long-term investors should ignore this passing weather, if they can, and resist being swept off course by the noise often triggered by the media.

Investors should remind themselves that markets that fall will more than likely rapidly rise again, and the recent past offers plenty of examples of this cycle in action. The Euro Crisis of 2011, for example, brought a sharp 18% decline in global markets, but was followed quickly by a 10% market rebound on the back of improved investor sentiment. Equity markets have certainly been buffeted since early September, and uncertainty is in the air. After the UK market peaked in September when Scotland voted to retain the Union, the benchmark FTSE 100 index has declined by around 9%. Over the same period, global macroeconomic and geopolitical factors have amassed and the MSCI World index has fallen by almost 7%. However, it is worth putting this into context; since the end of the financial crisis in 2009, the UK market has returned 102%.

This week's bulletin also includes:

  • US stocks signed off last week's turmoil with the best daily performance this year, highlighting the extent to which volatility has returned to global equities.
  • Investors have taken advantage of the buying opportunities presented by short-term volatility.
  • Assets other than equities continue to perform well; diversified and lower risk portfolios have supported positive returns.
  • Fund manager Neil Woodford advises investors to remain calm, and says that the slide in stock markets does not signal a return to the financial crisis of 2008.

View this week's/~/media/Files/S/sjp-group/document-library/bulletins/2014/mmb20102014.pdfMarket Bulletin , which contains thoughts and opinions of St. James's Place and our range of investment managers on the key issues affecting investors.

distributed by