A Friday Hiccup For Markets

Friday Selloff

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What's going on?

Friday saw a lot of red: stocks in Europe fell more than 2% and US stocks dropped almost 1%. The good news? Stocks (in the US at least) are near all-time highs and so the stock market is still far from crisis-like levels.

What does this mean?

After a very rough start to the year and a subsequent rebound in March, stock markets have generally been pretty quiet for the past few months. In fact, US stocks havebarely changed from one year ago (although European stocks have performed worse).

But markets got a bit of a jolt on Friday as fears of Brexit increased. Also, perceived safe investments, notably government bonds of big countries like Germany and the US, went up in value quite a lot last week. While there are various factors at play, a big increase in the price of government bonds can indicate that investors are favoring safe rather than risky investments and that can be a sign of low confidence in the overall market.

Why should I care?

The bigger picture: This finance stuff is an emotional business. Financial markets are notoriously prone to bouts of over- and under-confidence which is one reason why stock markets tend to move much more violently than underlying economic growth. The end of last week saw sentiment shift quite significantly and such negativity could easily continue this week.

For you personally: Its the long-term that matters. Even the most seasoned investors will usually say that predicting short-term market moves is exceedingly difficult. Most peoples investment horizons are longer-term in nature and so, while its useful to understand whats behind short-term market movements (especially if they are particularly sharp), its good to remember that its usually the long-term return thats relevant.

Originally posted as part of the Finimize daily email.

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