It's our job to systematically avoid getting carried away by short term fluctuations. We make long term projections so need to maintain a sense of perspective and balance a whole range of different considerations. We don't want to get distracted chasing after every headline on our screens or Twitter trend, and try to comment only on bigger trends, but even from our favoured 30,000ft vantage point, and ignoring bitcoin, events over the last few days look significant.
In our previous update, we highlighted the strain implicit in bonds and equities moving in the same direction, and events over the last month are the kind of fallout to be expected whilst such tension is resolved.
There are still very mixed signals about whether a slowdown, which is good for bonds but eventually bad for equities, or faster growth, which is bad for bonds but potentially supportive for equities, will win. Whichever comes out on top, it may be secondary issues that matter more to markets, such as a new fed chair who, faced with actual wage growth, may decide to put on the brakes harder than expected.
The activity over the last few days may have been driven by big picture considerations, but shorter-term concerns can't be discounted.
Since Donald Trump was elected, there has been great excitement about corporate tax reform, in particular what it means for the giant offshore funds held by the likes of Apple. That's now been resolved, and the tumbling Dow may be the result of traders acting on the old saying - “buy the rumour and sell the fact”.
Steep falls in markets don't say much about what is happening, but do reveal that there is fear. Markets are supposed to balance greed and fear but for the last year the fear has been missing with record low volatility in equities and a year long unbroken winning streak for the S&P 500. Whether because of real concerns or technical that spell has broken.
It's a bit early to say what these movements mean for investment prospects. As things stand, cheaper shares mean the prospect of clawing back recent losses over the next few years and some investors might find swapping their cash for bonds worthwhile. However, the situation is changing rapidly and it's very possible that updated fundamental expectations will offset that.