How to handle market uncertainty in 2019
After a long period of global growth and strong market returns, volatility returned to markets in October last year. This created a challenging environment for investors.
- So what’s causing the current market volatility?
- What can you do to deal with market uncertainty?
- Is volatility is here to stay?
What’s causing the current market volatility?
Share markets have been fairly volatile lately. Big price falls and scary headlines, followed by big rises, then falls again...it can be a bit alarming if you don’t have the right perspective.
Monetary policy, or the level of interest rates, and geopolitical risks, have been the main causes of recent volatility.
This is particularly so in the US, where interest rates have been rising. In 2018, four increases in the US cash rate caused economic momentum to slow. So investors had to reconsider their positive outlook for growth assets.
Meanwhile a few key events have unsettled investors. Tit for tat comments on trade from the US and China, concerns that Chinese stimulus will be less effective this time round, and ongoing uncertainty surrounding Brexit.
In Australia, a few events have brought additional uncertainty… the Hayne Royal Commission, the Federal election and how much the cooling housing market will affect consumer spending.
What can you do to deal with market uncertainty?
Your super and pension are long-term investments, so a good approach is to look beyond the daily headlines and instead focus on your longer-term goals.
Think about investing in a mix of good-quality assets that can grow your savings over time, and think carefully before making any significant changes.
Remember that markets are unpredictable, and trying to time them means you must get two important decisions right: when to get out, and then when to get back in again.
Switching to a more conservative option after a market fall locks in losses and may mean you miss out on any rebound that occurs.
Sticking to your long-term strategy usually gives you the best chance of achieving your retirement goals.
How long will this volatility continue?
Markets are now highly sensitive to US interest rate expectations and the geopolitical risks we mentioned earlier.
We’re expecting volatility to remain high for some time to come, but are also hopeful that we’ll see resolution in at least some key areas of uncertainty.
The outcome of Brexit in March and the ability, or inability, of the US and China to agree to a trade truce will be key near term events that will move markets.
We’ve already started to see some positive developments this year, and markets have responded in January by regaining some of last year’s losses. We’re not out of the woods yet though, by any means.
If you’re feeling uneasy, be sure to speak to your financial planner.