Global markets bounce back: keep calm and carry on?

Global stock markets have started to claw back the steep losses racked up over the past couple of days, with the US markets leading the way.

Overnight the Dow Jones index rose 2.3 per cent, the technology-heavy Nasdaq gained 2.1 per cent and the S&P 500 index advanced by 1.7 per cent. The rebound followed on from the Dow Jones and S&P 500 indices recording their biggest one-day percentage falls in over six years in Monday’s session (5 February).  

European markets have opened in positive territory, with the FTSE 100 index up 0.72 per cent, within touching distance of the 7,200 points mark, at 11.15am. The more domestically focused FTSE 250 has gained 1.3 per cent, while the broader FTSE All Share index is up 0.8 per cent. 

The gains across the pond, however, did not spread to Asian markets, with the majority posting losses. Japan’s Nikkei 225 index was an exception, although it ended trading flat, gaining a mere 0.16 per cent. 

Most commentators stressed the sell-off would be temporary, and will be feeling vindicated after the US and European markets ended their two-day losing streak. 

But investors should prepare themselves for a pick-up in volatility, which was noticeably lacking in 2017. 

According to John Husselbee, a multi-asset fund manager at Liontrust, the ‘three Cs’ are key to short-term market sentiment: China, commodities and central banks.  

‘While rising oil prices and hard landing concerns around China have failed to spook markets, fears that rising inflation may force policymakers into hiking rates quicker than predicted seems to have triggered the recent panic,’ he says. 

‘As ever, we can only wait to see how far markets ultimately fall, but having been expecting a correction for so long, we are relieved to get it over and done with and focus on more fundamental factors. One thing to monitor is whether this pullback is enough to shock markets out of the low-volatility environment that has prevailed in recent years – the current spike is no surprise, but we have seen similar moves before, only for volatility to dissipate.’ 

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It is important to note, however, that higher levels of volatility are not necessarily a reason to panic, particularly when the global economy has not taken a turn for the worse. 

Helal Miah, investment research analyst at The Share Centre, adds: ‘We do not believe this is the start of a bear market which usually precedes an economic downturn, the global economy is far from the top of the cycle and corporate profitability is on an upward trend.

‘Despite this, in recent months, we have been expressing caution to investors in chasing the rally and have advised them to hold some cash on the side-lines instead for better buying opportunities. We believe, now could be that buying opportunity.’

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