Short term pain for long term gain

Current Market Volatility

For those of you who enjoy your sport, I hope you’ve been relishing the Olympics. Amid the headlines about our athlete’ great achievements the current market volatility is also getting a few headlines. To address this, I’d like to share our perspectives in a manner that is helpful and relates to your circumstances.

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A News Filter For You

No doubt headlines about large market falls make people anxious. In fact, news outlets often glorify what is happening and ignore the broader perspective. Let’s start with a round up of recent financial developments, filtered for you:

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Australia -

The RBA met today,  with rates to remaining on hold at 4.35%, as recent inflation results have  come in as expected. The unemployment rate is one of the key indicators to  monitor.

Recent ASX  volatility is providing some market jitters with investors becoming more  cautious about the economy as fears of recessions start to build.

The August ASX reporting period will  provide plenty of insight and direction for the second half of 2024.

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UK and Europe –

The Bank of England cut rates on 1^st  August by 0.25%, the first rate cut since 2020. This follows the European  Central Bank.

Keir Starmer is yet to announce any  concrete proposals on taxes or pensions, but we expect them.

Local markets have held up reasonably  well, with rate cuts generally cheered by investors. Local bonds are also  holding up and offering diversification benefits.

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US –

In a busy period, the Federal Reserve is  very likely to cut rates in September, especially given recent evidence of a  weak jobs market.

The US election is also twisting, with  Kamala Harris hitting the lead in recent polling.

Finally, US tech companies are  experiencing a correction after running hot earlier this year. Again, bonds  are providing a ballast.

Asia –

Japan is making headlines, with the Bank  of Japan rising interest rates unexpectedly. This has triggered the Japanese  yen to rise quickly and Japanese stocks to fall, unwinding recent moves the  other way.

Other emerging markets, including China, have  had a bit of a challenging run but are holding up better amid the volatility.

On face value, it appears that bigger up and down days in markets (or vice versa) are upon us. However, thisis not a sign of a broken market—it is very typical of what happens wheninvestors are trying to digest new information quickly. It won’t last forever and won’t get in the way of us achieving your financial aspirations.

It is also worth notingthe nature of setbacks. They are often a reversal of what has already run alittle hot. For example, the Nasdaq in the US (an index of technology companies) has fallen by 10% since 9^th July but is still up 13% this year. We can see a similar pattern across the globe.  

Markets Never Move in Straight Lines

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Changes That Can Benefit You

Turning to actions, thiscould become a great opportunity to add value in the pursuit of your financial desires.To do that, you will hopefully find the below helpful:

1)      Don’t try to pick the exact bottom of any market correction - and don’t expect us to either. Markets don’t work this way. As Peter Lynch famously said, “Far more money has been lost by investors preparing for corrections or trying to anticipate corrections than has been lost in corrections themselves”. From all our analysis and knowledge, the best approach is to stay the course and invest consistently. The key is to understand probabilities and keep your money at work over long time horizons and ride out market ups and downs over multiplemarket cycles.

2)      Consider interest rates.The RBA has remained in its holding pattern since November 2023, keeping the cash rate at 4.35%. While we’re seeing inflation coming down, the question still remains: is the trajectory steep enough? Australia’s unemployment rate is a pivotal piece of the puzzle, especially if inflation remains stubbornly persistent.

3)      Stay focused on your goals. You should have a financial plan in place tohelp you achieve what is important to you. If you’d like us to review your projections and planning, please get in touch. This will help you to stick tothe plan – and please remember that changes in markets are part of the journeyto achieving those goals.

4)      See the positives in this. I’d like to end by sharing a Warren Buffett quote that I love whenever the market wobbles: “Every decade or so, darkclouds will fill the economic skies, and they will briefly rain gold. When down pours of that sort occur, it’s imperative that we rush outdoors carrying wash tubs,not teaspoons”. The key here is that volatility creates opportunity, and when valuations further highlight such opportunities, Morningstar is taking advantage of this within our portfolios. Above all else, we are with you on this journey.

As always, we are very happy to help. Please let us know if you have any questions.

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