At the beginning of the month, equity markets displayed a significant reaction to data as evidenced in the chart below of major equity indices during the month of August.

As we have highlighted in our ongoing investment commentary, equity markets have for some time been focused on the outlook for inflation, interest rates and growth. The beginning of August has seen major equity indices fall significantly driven largely by weaker than expected US jobs data (prompting fears over a recession), the Bank of Japan unexpectedly raising interest rates for the first time in many years and weaker earnings from several ‘Big Tech’ firms.

A more fundamental appraisal of the US economy (from where most of the current uncertainty derives), economic growth for Q3 2024 is projected to be just above trend at a little over 2% – not obviously a cause for concern and not indicative of an immediate recession. In fact, the robustness of the US economy has been the biggest obstacle to interest rates not falling before now – a case of good news being bad news.

The reassuring point is that markets have since recovered, largely back to the same levels and the year-to-date progress remains very good. This is reflected across our portfolios with performance remaining strong relative to our benchmarks.

Time in the Market

At times of increased volatility, investors can easily make decisions based on fear and look at limiting losses by turning part or all of portfolios to cash.  In our opinion and based on historical data, this strategy seldom works with the decision over when to re-enter a market adding additional risk or missing out on future returns.

The chart below demonstrates this position by showing the returns from Global equities (MSCI World Index in GBP) over 20 years and the effect of missing out on the best 10, 20, 30 and 70 days.  As can be seen, the buy and hold strategy of remaining invested has generated the highest return.

Given the speed at which markets move, trying to time the market can easily miss out on returns even if only for a few days. The Japanese market was a prime example of this falling by 12.4% on August 5^th and then increasing by 10.2% on August 6^th.

The overriding message is that having a long term investment strategy should provide a more successful outcome over the longer term. We remain cautiously optimistic for returns going forward and will continue to monitor markets and will make/recommend changes as necessary – if you have any concerns or wish to discuss your investments in further detail please speak to your Financial Planner or Investment Manager.

The Boolers Investment Committee