BT Financial Group
Last week in the US saw some extraordinary market movement for asset classes across the board.
A weaker Asian market during Thursday (thanks to China being down 4%) set the tone for European markets to be weaker when they opened. And continued concerns over the protests in Greece put additional pressure on the Euro, which fell to levels last seen at the beginning of 2009.
Investors had potentially been looking for some additional information in relation to the building debt default risks in Greece and the possible contagion in to other European countries from the scheduled meeting of the European Central Bank, but this didn't eventuate, and uncertainty weighed upon the market. That said, the Greek parliament voted in favour of the austerity measures from the European Union (EU) and International Monetary Fund last night, and there'll be more news tonight in relation to the German parliament passing the measures, with EU meetings over the weekend providing further clarity.
This more negative tone flowed into US markets, even though no new fundamental news came to light. The negative sentiment was vastly exacerbated after the market fell abruptly in afternoon trading. Speculation that a trading error saw a sudden drop in the market triggered a barrage of program stop-loss selling, which saw the S&P 500 index down 8.5% at one stage. Buying quickly returned but the market didn't have enough time pull back all the losses, eventually ending down 3.2% for the day and down 6.5% for the last five days. The sell-off also spurred safe haven buying in gold, US treasuries and the US dollar.
The reaction did spark panic and uncertainty, and with the memories from two years ago still fresh in investors' minds, many people may be asking whether we're going to have another massive sell-off. But economies are healing from the aftermath of the economic crisis. They're in a much better position than they were, and markets have reflected this to a large extent. Although, there's still much healing to be done and there will be bumps along the way, economies are well traversed on that recovery road.
Markets, however, remain highly sensitive to both good and bad news, which will cause significant short term volatility, such as we're seeing at the moment. Investors like to have a degree of certainty around issues and when that's not provided, fear can dominate investment decisions.
But an investment strategy should always focus on the longer term goals rather than reacting to short term market noise, which has been exacerbated by panic and the events over the last few days and needs to be put in context of the improving bigger picture.
If you have any questions about this release or Advance in general, please contact your Advance Sales Manager on 1300 361 864.
About Patrick Farrell:
Patrick was appointed Head of Advance Investment Solutions (www.advance.com.au)
Photo:
http://www.prlog.org/
