Does the fall in the stock market since Monday signal the end of the bull run?
Most investors are saying that Monday’s stock market crash was a correction and not the start of a major crisis.
Global markets have had a record-breaking rally since the recession, and experts have been predicting for a while that the bubble would soon pop. Plus, investors have not yet cocooned themselves in the safe haven of gold – suggesting that they are still optimistic over the geopolitical outlook and strong global economy.
But that may not be the whole story. The bull market has thrived for so long in part because central banks have been prepared to supply money to the markets at very low interest rates. Investors are now worried that this era is coming to an end – and that higher inflation may force policymakers to be stricter when providing stimulus.
In the short term, it is indeed likely that shares will bounce, but in the long term, this crash could herald a new age of caution, and with it the end of the bull market.
While the speed of the market declines over the last few trading days has unnerved investors, market declines of this overall magnitude are not uncommon. We may have moved from being overdue a market correction to approaching being overdone.
The current correction in risk assets is potentially a pause for breath after the sharp rally over the past year. Staying the course in equities still makes sense for a number of reasons – valuations are undemanding outside of the US and fundamentals remain strong.
The global macroeconomic environment continues to improve with synchronised global growth, the current reporting season is the strongest in seven years, monetary policy is still accommodative, and with central banks likely to move gradually, the equity risk premium remains elevated.
2017 was a year of tranquillity, and so volatility could only really pick up in 2018. But this is not a reason to panic – periods of volatility, where valuations become more attractive, can provide opportunities for active, long-term investors.
Read more: Q&A: Why are stock markets falling?