Although a stock market correction has been long forecast and well overdue some may argue, the volatility that we have witnessed in the last few days has still come as a shock to many. The FTSE 100 reached a near peak of just under 7,800 in mid-January and is currently trading at 7,177 at time of writing. Similarly the Dow Jones hit 26,616 last month and is now 24,912.
Global growth remains strong so what has caused the hiccup? As is sometimes the case, one of the main reasons can be almost counter-intuitive. Over the last 4 years, the US economy has added 10 million jobs bringing the employment rate to it’s lowest level since 2000. This was reflected in the non-farms wages data late last week which was stronger than expected leading to fears of inflationary pressures and ultimately to higher interest rates which can be detrimental to company profits. So the US economy seeming is doing too well for equity markets!
With the bull market having been so strong and lengthy it is natural for profit-taking to have occurred and when put into context the falls which we have seen are still fairly modest when compared with the returns that investors will have enjoyed during the last few years. So my advice is ignore the media hot air (or sloppy journalism in many cases), keep calm and carry on regardless.