Filter out the near-term ‘noise’ and concentrate on long-term objectives.

For those (like your writer) who have just returned from a week away from the screens, I’ve quickly replaced my sun hat for a tin hat, with market volatility whipsawing from non-existent to levels similar to those last experienced during the pandemic!

However, despite a rout in the stock market (largely driven by some disappointing data reported out of the US last week), all might not be quite as bad as is currently being priced in.

Firstly, it is important to remember that markets are not, NOT rationale.

That is ultimately what makes a market and whilst clearly there has been a much anticipated rotation out of some of the US mega tech names and in particular, those closely associated to artificial intelligence (having been on a rip for the last 18 months) the assumption of many remains that the market will recover, as the US economy holds up better than feared and investors likely rediscover their enthusiasm for technology.

Whilst it is acknowledged that the probability of a ‘hard landing’ in the US has increased, this is not the base case for many in the financial services industry and if this stands true, the recent selloff could be an overreaction to the recent economic data.

To be clear, there should not be complacency, as we are all well aware of the other (potentially significant) risks out there, ranging from an escalation in the Middle East, the run up to the US Presidential Election and European political fragmentation to name but a few.

In addition, the key risk to the more ‘glass half full’ view, of course, is that the recent disorderly market reaction is sustained and this will feed through to a higher chance of recession in the US – if only because it becomes a self-fulfilling prophecy, with firms responding to the perceived threats and either cutting back on investments/headcount or getting into financial trouble due to the sharp market moves themselves.

That being said, as long-term investors, what is most important is an attempt to filter out the near-term ‘noise’ and concentrate on the fundamentals. Whilst volatility can be unpleasant, these are also the times to step back and consider what has really changed. Whilst those forced to sell may need to make knee jerk reactions in the near-term, those with multi-year investment horizons should remain patient and instead view this as an opportunity.