Market comment: a dose of the heebie-jeebies

Equity markets across the globe have seen a significant sell off since Friday (around 5% across most major markets, some slightly more than that). The fundamentals of company and consumer actions don’t change overnight. So what happened?

Facebooktwittergoogle_pluslinkedinmailFacebooktwittergoogle_pluslinkedinmail   by Kasim Zafar, 6th February 2018

Pullbacks in markets are (usually) quite normal and healthy, giving moments of pause where everyone pats themselves over, does a quick sense check and then carries on. In the case of the US equity market it hadn’t fallen more than 5% in 404 trading days (back to June 2016). That’s the longest stretch of “uninterrupted” gains in history, with data back to 1928!

There weren’t enough signs of investor heebie-jeebies around, especially not in January when the US index was up over 7% for the month at one point. That’s pretty extreme and entirely unsustainable.

The equity market has finally taken notice that over the last several weeks bond markets have been reflecting a higher inflation and interest rate environment, so it’s not at all surprising to see some adjustment and a return of some much needed investor fear!

We are going through the quarterly reporting season for US companies currently, which is a good test of what’s happening on the ground. With 264 out of 500 US companies having reported so far, most are reporting positive results for both top line revenue growth and bottom line earnings.

So, as things stand, we see this as a long overdue market correction and if it falls much further we would be looking to increase our equity weightings. Increased volatility is a healthy sign of investors becoming more conscious of the risks inherent in markets.

 

Kasim Zafar, Portfolio Manager
EQ Investors

About the author: Kasim Zafar

Kasim graduated with a BSc (Hons) in Physics from Imperial College and is a CFA charter holder, being a regular member of the CFA Institute and CFA UK. He began his career in investments in 2002, gaining experience as a portfolio manager and senior analyst of global capital markets. His experience spans multiple asset classes, constructing portfolios with varying risk/return objectives and active risk management processes.

Kasim is the portfolio manager for the EQ Investors Best Ideas and Absolute Return portfolios. He is an active member of the investment management, strategic asset allocation and fund selection committees.

When not immersed at work, Kasim often finds himself stumped and constantly amazed by his young daughter at home. He also enjoys spending time in the kitchen practising his “cheffy” skills with both European and Asian cuisine, reflecting his mixed background.

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