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February 2018 Market Wrap

It was a remarkable month in the Australian share market, with the All Ordinaries index eventually closing the month 0.5% lower at 6,117.30 points.

The Australian Dollar fell 4.0% on the back of heightened volatility in global investment markets, with 1 Australian dollar currently buying 77.40 US cents. As expected, in the February board meeting, the Reserve Bank of Australia (RBA) board kept the official Cash Rate on hold at 1.50% per annum.

Global share markets were also extremely volatile in February, as positive United States jobs growth results released early in the month caused fear that inflation in the United States will take-off.

For the month of February, the United States Dow Jones index fell 4.3% (after gaining 5.8% in January), the London FTSE fell 4.0%, the Japan Nikkei 225 fell 4.5% and the Hong Kong Hang Seng Index fell by 6.2% for the month.

While large falls in investment markets are always unpleasant, it is worth putting these falls into perspective.

The chart below shows the relative performance over the first two months of the 2018 calendar year of both the Australian and United States share markets.

Screen Shot 2018-03-01 at 1.14.04 pm

Source: Yahoo Finance

As shown above, the values are broadly unchanged for the calendar year to-date! While it is fine for media outlets to report headlines such as "Dow Jones hit by biggest single-day points drop ever", investors must remember that this comes with no perspective.

The reality is that despite the media reports from the first two weeks of February, the Australian share market fell by less than 1% over the first two months of the calendar year, and the United States share market has increased by more than 2%.

For what it's worth, I do expect the volatility investment markets to persist over the medium term.

That said, strong jobs growth in the United States is a good thing! Likewise, a little inflation and increasing interest rates are all a sign that an economy is on-track to a sustained economic recovery. These are positive signs for a long-term patient investor.

For more information, please contact Ryan Love on 1300 856 338.

This article is general information only and is not intended to be a recommendation. We strongly recommend you seek advice from your financial adviser as to whether this information is appropriate to your needs, financial situation and investment objectives.