Markets are slumping. Should you worry?

Yes, markets are nervous. Yes, the economic news is darkening. But look at the facts, and the supposed gloom seems over-done.

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“Global shares fall as growth fears rattle investors”
“Stock markets tumble over China lockdown fears”
“Oil hits £113 a barrel despite emergency measures”
“Stocks slump as UK GDP contracts”

The headlines are gloomy. Markets have been nervous since late February. Ukraine, rocketing inflation, soaring energy prices, commodity shortages — and now, here in the UK, the latest GDP figures show that GDP growth has unexpectedly turned negative.
Is it any wonder that the Footsie is down 1.8% as I write these words (at the beginning of the week)?
At 7,185, it has lost almost 500 points since early February.

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Simplistic analyses

Seasoned investors, however, are leery of such headlines, and even leerier of the simplistic analyses that they often denote.
Yes, the Footsie is down 1.8%. And yes, today’s GDP figures do show that the UK economy is unexpectedly contracting.
But cause and effect are tricky things to disentangle — and while the Footsie is down 1.8% today (Monday), Frankfurt’s DAX is down 2.11%, Amsterdam’s AEX is down 3.1%, and Paris’s CAC down 2.3%.
UK investors might have cause to be gloomy about the UK’s economic performance — but not investors in Frankfurt, Amsterdam, and Paris.
Far less investors in distant Hong Kong, down 3.4%; or Tokyo, down 3%.

Headlines of hype

At which point, I’ve a confession to make.

“Global shares fall as growth fears rattle investors” This, in fact, is a headline from 19 May.

“Stock markets tumble over China lockdown fears”  Er, 25 April.

“Oil hits $113 a barrel despite emergency measures”  2 March, actually. Incidentally, Brent Crude is $7 higher, today — but I don’t see any panicking headlines.

In fact, day-to-day headlines are mostly just noise. On any given day, markets are liable to be “tumbling”, investors “rattled”, and commodity prices hitting new lows or peaks.

The reality is that, at 7,185, the Footsie is actually higher than it was in December, before market nerves set in, and markedly higher than the 6,844 it stood at mid-July last year. When — you don’t need me to tell you — the economic news was distinctly sunnier.

Indeed, look at a five-year chart, and the Footsie is trading roughly in the middle of its range during 2017–2020, right up until the Covid-induced crash in February and March 2020. But “business as usual” doesn’t sell newspapers, or generate clicks.

What to do? Here’s three thoughts

First, keep a sense of proportion.
As I’ve remarked before, stock market events that seemed quite dramatic at the time — 1987’s Black Monday, for instance — barely register on a long-term chart of the FTSE 100 going back decades. The Gulf Wars, the dotcom crash, the financial crisis of 2007: wobbles in the chart, yes, but dwarfed by the Footsie’s subsequent steady growth.
And I’ve no doubt that today’s market nerves will be no different.
So definitely, don’t rush to sell.
Second, decent stocks can be snapped up at reasonable prices. There are still bargains to be had, and shares to be acquired that should have a place in almost any investor’s portfolio. In particular, the UK-focused FTSE 250, to my mind, is looking over-sold.
And third, it’s undeniably true that the rush away from stocks that have been regarded as ‘tainted’ on ESG concerns has come screeching to a halt. Far from ditching these stocks in order to burnish their ethical and sustainability credentials, institutional investors are instead looking to load up on them. (Me? I never sold them in the first place.)
Oil and gas stocks, defence stocks, mining stocks — even, oddly enough, tobacco stocks: all up 20%, 25% or more. No longer unfashionable or unwanted, they’re delivering decent profits and a tasty income stream, with arguably more upside to come.
So if your portfolio is light on such stocks, now could be the time to redress that.

Gloom? No way.

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