What goes down,
must go up

On 5 August 2024, the Japanese stock market plunged and seemingly caused a significant ripple effect across global markets including Australia.

So how are your super and investments affected during times like these? It’s a good time to remember that while markets go up and down in the short term, in the long run markets bounce back.

Here’s what you need to know.

It wasn’t one factor, but a number of factors that set off this roller coaster ride.

Last week, the US market started to slide with the release of some economic data and earnings reports.

On the economic front, a US employment report showed unemployment had risen, with job positions declining.  Some read this as a slowdown in the economy which drove concerns of a US recession.

On top of this, tech and media company earnings disappointed investors. Some investors expected the significant spending on artificial intelligence and the associated benefits would drive greater earnings. Ultimately, this meant US earnings did not meet expectations, adding to further predictions of an economic downturn.

At the same time, the Japanese Yen strengthened after a second increase in interest rates. There had been widespread trading activity where investors borrowed Yen at a cheap rate and invested in shares and assets outside of Japan. So, there was a large volume of investors selling shares which shook global markets and drove down share prices.

At CFS, we believe the prediction of a US recession is premature. One week’s employment data isn’t a strong indicator of economic downturn. Also, the Federal Reserve also has the option to reduce interest rates to ease economic pressure.

This week’s events were significant. However, it’s a good reminder to stay focused on your long-term investment strategy instead of reacting to short term events.

To further illustrate how quickly things change, a day after Japan stocks plunged, its share market rebounded strongly.

As this chart shows, the long-term trend across major investment types is positive, with shares experiencing more volatility and diversified investments less susceptible to market moves.

Be assured, we prepare for times like these.

The CFS Investment team is geared to think about the unpredictable and take action to navigate through times of instability.

We monitor key global events and their potential implications, then take mitigating action.

Our Investment team follows a philosophy of diversification and holds significant liquidity to enable us to be responsive in these types of environments. Our active management style also means we can more effectively manage risk.