Market update - interactive investor comment

Our head of markets looks at the current state of both the US and global markets.

Commenting on the current state of the US and global markets, Richard Hunter, Head of Markets at interactive investor, says: “The phrase “lies, damned lies and statistics” is a timely reminder that, depending on how you interpret the numbers, we may be in a rather different position to the reality of the current situation.

“The current state of the Dow Jones Industrial Average and the S&P 500 indices in the US is a case in point.

“Since their most recent lows on Monday 23rd March this week, in just three days both had surged by over 20%.

“To some observers, this put the market back into bull market territory by traditional definitions, which is clearly misleading.

“It certainly proves that the market remains volatile and prone to wild market swings, a feature which is unlikely to evaporate in the near term.

“Meanwhile, some market purists will no doubt point to the fact that the move to a bull market phase only begins when a new recent high is hit. By this measure, the DJIA, for example, currently languishes 7000 points below its February 2020 peak and, indeed, even after this week’s rise remains down 21% in the year to date.

“Hardly bull market territory.

“However, other numbers perhaps begin to give further credence to the nature of longer-term investment and the perspective it brings.

“Simply returning to 2018 is such an example. 

“The year was a difficult one in markets generally. In the UK, Brexit uncertainty loomed large and elsewhere escalating trade tensions between China and the US, concerns over slowing global growth and potential monetary tightening (investors had previously been pricing in four hikes during 2019) dragged on markets.

“Despite this and the market tribulations of 2020, the Dow Jones is down just 3.3% since the end of 2018. The S&P 500 is up 5% in that period, and the turbocharged 2019 performance of the technology-laden Nasdaq has resulted in that index still being 17.5% ahead of end-2018.

“There is little doubt that the next few months will be mired in uncertainty and a likely global recession. Social, economic and of course health factors will remain at the top of the global agenda and company results coming out of the first and very possibly second quarters will make for ugly reading.

“Investor sentiment has taken a heavy blow and the sharp declines of the past few weeks means that a turnaround for both could take time to wash through.

“In the meantime, the largesse of global governments and central Banks – the long-term cost of which is a debate for another day – has undoubtedly had a pacifying effect, at least for now.

“Whether we are in the territory of bear market or bull market today is of little significance compared to the repair of the global economy, and the need for investors to cling on to the long-term investment horizon, however difficult that may currently feel.”