After a period in which bad news was taken by the market as good news because it was perceived to increase the likelihood of further monetary stimulus, disappointing announcements have recently started to weigh on sentiment again.
Investors have judged that the US Federal Reserve is less inclined to ride to the markets’ rescue than it was a year ago when it launched the second round of quantitative easing.
The latest falls in equity markets are further evidence that, following the slide in August, investors are struggling to decide the appropriate level for markets in light of all the various uncertainties.
Markets are bouncing around in a band, the bottom of which seems to provide reasonable support from bargain hunters but which is capped at a level beyond which investors are too nervous to push prices.
One curious anomaly of the generalised flight to perceived safety is the fact that emerging markets are struggling just as much as those in the developed world despite investors’ main concerns being focused on the US and Europe.
Markets are bouncing around in a band, the bottom of which provides support from bargain hunters but which is capped at a level beyond which investors are too nervous to push prices
Forecasts from Citi recently showed that economic growth in the emerging markets is expected to continue at a much higher level than in the West but despite this, shares trade at historically low valuations.
The current period of depressed and volatile markets is a reminder for investors of the period of four or five months which followed the sharp falls in the autumn of 2008 before the market finally achieved a sustainable low in March 2009.
Then, investors were able to increase their exposure to the market at attractive levels for an extended period, a boon for those dripping their money into the market on a regular basis.
The extent to which history repeats itself depends on whether the slowdown in activity and confidence leads to nothing worse than a period of sub-par growth and lower-for-longer interest rates to match or turns into something nastier – a double-dip recession.
We won’t know the answer to that until it is too late to benefit via our investments. But the apparent support for the stockmarket at not far below current levels suggests that plenty of investors are backing the more benign outcome and seeing good value in markets at the end of a bruising month.
Tom Stevenson is investment director at Fidelity International