Does A Bear Market Beckon?

Stock markets around the world have taken a beating in the past week, but it's important to take stock of the situation and remember some of the basic tenets of investing.

Economic fundamentals and sentiment combine to influence the trading value of shares. A company's future profits and returns from other sources form the basis of these economic fundamentals.

While the future earnings look to be in positive territory due to the current upswing in global economic growth, the level stock markets are currently makes the prospect of future large rises in the markets less than certain, as the anticipated profit growth is not justified by the high share valuations of the moment. The exception is the US, where President Trump's new tax regime is expected to increase future earnings for US companies.

The attractive returns of shares and funds in the last few years have been the result of low interest rates and quantitative easing on the part of central banks, reducing the attractiveness of cash and bonds, forcing investors elsewhere. This looks to be coming to an end however, with rates projected to rise in the US and some other markets.

Two year government bonds have risen past 2%, and 10 year bonds are close to 3% in the US.

The US Federal Reserve looks as though it may increase rates due to the strength of the US economic numbers.  

In terms of sentiment, the recent acceleration before the latest correction after a long period of market rises could signal the end of a bull market according to some observers, but this is not a given.

It's important to remember that while there will always be short term volatility, your investment strategy over the long term should remain your area of focus. Are your investments in line with your long term objectives?

Contact Westminster Wealth Management today and one of our skilled advisers can construct a financial plan for you that will enable you to meet your financial goals.

The value of investments and income from them may go down as well as up and you may not get back the original amount invested.

Past performance is not a reliable indicator of future performance.