A classic staple of past bull market cycles has been the proclivity of markets and market participants to have short spells of worrying unnecessarily about certain risks.  Markets never go up in a straight line and often, if we look back at past bull market cycles, the short spells of market weaknesses you observe were driven by these bouts of worrying.

When we look back at them, we realise that there was little justification for these market jitters, it was simply a short-term blip of fear, followed by the resumption of positive sentiment and positive market moves.  These blips were opportune times for patient investors to increase exposure to risk assets. 

At the time, it is easy for investors to become wrapped up in the fear and sometimes the panic induced by these periods in markets.  In the five years of strong positive equity markets leading up to 2019 we can recall at least two separate scares related to North Korea firing missiles into the sea. 

The lead up to the election of Donald Trump in 2016 led to market jitters about the implications of a Trump victory.  There were similar gyrations and fears in global markets following the surprise decision of the UK to leave the EU that same year.

In fact, the more we think about the past in financial markets, the more examples we can recall of now long forgotten issues which, at the time, dominated news headlines and led to investor fears of an imminent market decline, requiring ‘action to be taken’.  History and hindsight tell us that, more often than not, major investor concerns about most issues are overblown. 

This is not always the case, there are rare instances like the 2020 pandemic where the risk of major market declines was real, similarly the financial crisis of 2008.  But major issues like this requiring investors to take defensive actions are few and far between.  They do not happen very often and, when they do happen, they are usually very unusual events.

Recently we have seen a credit downgrade form Fitch of US government debt hit the headlines as something investors should be concerned about.  A short bout of market selling followed.  This and ongoing wrangling in the US Congress on budgetary decisions has moved up the headlines and become an issue many investors are asking questions about.  This smells to us like a news story investors should be looking through and largely ignoring. 

The news cycle will always look for scary news stories, news establishments are incentivised to do this.  In the absence of real issues to worry about for investors (financial crises, global pandemics, being two examples), the news media will show us issues they suggest we should be worried about, but which actually pose very little if any risk to our portfolios (North Korean sabre rattling, US political problems, another war in the middle east, and many more examples).  The truth is these issues are just news stories and have no effect on a well-diversified global portfolio of assets.

What is more, it is normal during a bull market to have short pauses where markets worry about X or Y, only for everyone to forget about X and Y very quickly as the news cycle moves on. 

Save the worrying for the big ones, when they do come around from time to time.  For now, we don’t see much to worry about.  We remain fully invested and see opportunities in many areas to invest at attractive valuations. 

This can always change.  Evidence of recession and major slowdown in the economy is a good reason to be worried about short-term asset price performance.  But we’re not seeing evidence of that yet and so remain tactically bullish.  We’ll save the worrying for when we need it. 

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