WeekWatch

As the dust started to settle from the panic in markets at the start of August, many investors were left thinking ‘what was that all about?’

Global share prices had started to unwind two weeks ago after the Bank of Japan raised interest rates, spurring a jump in Yen prices. In addition, weakening job market data in America led to rampant speculation that the US was about to enter a recession.

This all culminated on Monday last week, with the Nikkei plummeting 12% in a single day’s trading. European and American indexes followed suit, posting notable drops as they opened, albeit to a lesser extent.

There was even speculation of an emergency Federal Reserve meeting being called to cut interest rates, in the hope of keeping the American economy in positive territory.

Yet, as the sun rose on Tuesday morning, markets began to recover, and analysts were left with a sense that perhaps there had been something of a global overreaction.

For example, the Federal Reserve Bank of Atlanta’s GDP forecast for the third quarter remains a healthy 2.9%.

Mark Dowding, Chief Investment Officer at BlueBay, notes: “Broadly speaking, US data are consistent with a softish landing and there is little evidence to back up a recessionary claim. Looking at an array of statistics on the US labour market, the picture remains healthy. The unemployment rate rose last month, but there were hurricane-related distortions in this figure.”

While there was a recovery in the second half of last week, so far August has been an undeniably tough month for investors. Since the start of the month, the NASDAQ is down 4.8%, while the S&P 500 is down 3.2%.

Much of the fall has come from technology companies that had previously driven much of the equity price growth over the past year. This serves as a timely reminder of the need for diversification.

UK shares have held up a little better, but still fell 2.1% between the start of the month and the end of last week. UK markets were somewhat helped by the nature of the companies within the FTSE, as it is less dominated by the massive technology companies as seen in the US.

Taking just the five days that the market was open last week in isolation, the FTSE 100 actually grew very slightly. However, the UK is due to report inflation figures later this week, which is widely expected to show an increase above the 2% target reached recently. The Bank of England was likely aware this was coming when it decided to decrease interest rates recently, and so an inflationary increase is unlikely to change their views.

The Japanese market has fared much worse and has seen some notable swings of late. After the 12% drop on Monday, the Nikkei recovered 10% on Tuesday, and ultimately ended the week down only 4.8%.

However, as mentioned, the week prior was also a tough one for the Japanese market, meaning it is now down 10% since the start of August. It should be noted that prior to the recent volatility, the Japanese market had been one of the top performers of 2024. Even with all the recent falls, it is still up over 4% so far this year.

Even if the market has now calmed down, recent events should serve as a reminder of some basic elements of investing. For example, Markets will go up and down, and that’s why it’s important to diversify your investments.

Given the big bounce in many markets on Tuesday last week, it also highlighted the importance of not panicking during market falls, and making short-term decisions that could compromise your long-term objectives.

According to Duncan Lamont, Head of Strategic Research at Schroders, selling your holdings after a big fall is often a tempting, emotion driven, response. However, he notes: “Our research shows that, historically, that would have been the worst financial decision an investor could have made. It pretty much guarantees that it would take a very long time to recoup losses.”

“For example, investors who shifted to cash in 1929, after the first 25% fall of the Great Depression, would have had to wait until 1963 to get back to breakeven. This compares with breakeven in early 1945 if they had remained invested in the stock market. And remember, the stock market ultimately fell over 80% during this crash. So, shifting to cash might have avoided the worst of those losses during the crash, but still came out as by far the worst long-term strategy.”

BlueBay and Schroders are fund managers for St. James's Place.

It’s every elite sportsperson’s worst nightmare: suffering an injury or illness that could end your career.

You may be at your professional peak, or heading towards it, with all the success and financial rewards that come with it – and then, suddenly, one bad tackle, twisted limb or serious diagnosis can set you on a completely different path.

Of course, there are leaps and bounds being made in the treatment of sports injuries, meaning a condition that might have stopped you playing for good some years ago can now be successfully managed. However, a career-ending mishap is still a risk that you need to consider and prepare for, particularly as it could deliver a devastating blow to your finances.

Financial education is the key to everything when it comes to being prepared for the worst. If you don’t have that financial awareness, you might not know what actions you should be taking.

A major aspect of that is understanding the importance of starting to plan ahead as early as possible in your career, especially as it’s likely to be short and could be made even shorter by injury. This could mean, in the first place, learning to avoid the temptation of spending all your income – which is an easy trap to fall into if you suddenly find yourself earning millions of pounds a year and aren’t used to that kind of wealth.

A general rule of thumb, advocated by many financial advisers, is to save and invest at least one-third of your earnings. It might not be seen as hugely important for an 18-year-old who’s making £50,000 a week. But unfortunately, you see highly paid sports stars who become bankrupt when their careers end, when they never should.

A big part of financial education is cash-flow forecasting. This is where a financial adviser will demonstrate what your income is likely to look like in the years ahead, based on various scenarios, such as earnings, sums invested and the performance of those investments. This is hugely important in terms of giving you a view of the future and encouraging you to start planning early in your career.

As well as being prudent and ensuring you’re putting enough money to one side, it’s important to protect yourself with the right insurance.

This means taking out a career-ending insurance policy and paying regular premiums. Then, if you’re injured or ill and consequently find yourself without a contract, you’ll receive a tax-free lump sum that will compensate for the income you would have earned.

The value of an investment with St. James's Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

Where we refer you to an insurance specialist, their services will be separate and distinct to those offered by St. James's Place.

“We know the Olympics Games cannot create peace. But the Olympic Games can create a culture of peace that inspires the world.”

International Olympic Committee president Thomas Bach reflects on the Paris Olympics, which ended over the weekend.