The October Share Market Scare

Share Markets Fell sharply in October, led lower by the technology-heavy NASDAQ index in the US. Many major market indices are now in negative territory for the calendar year. A notable feature of market behaviour through October was that Bond markets also came under downward pressure. Diversifying into bonds turned out to be a less effective tool in mitigating volatility than in it has been over the last 5 years. Defensive diversified funds with a large commitment to bond markets experienced a disproportionately large increase in realised volatility. This article seeks to provide an explanation for the downturn and address the outlook for share markets. The main points are: The fall in equity markets appears to have been triggered by a sharp rise in US bond yields; It’s a feature of share markets these days that when they fall, they fall sharply; While the rise in bond yields was driven by growing confidence that US economic activity is likely [...]