The FTSE100 entered bear market territory on Wednesday, closing over 20% below its previous peak of 7103.98 last April.
January so far has seen the FTSE 100 fall 9.3%, whilst the Dow Jones is down 10.7%, the French CAC 40 down 11.0% and the German DAX down 12.0%.
The markets contrast to the economic data, which is basically quite good, with UK unemployment down to record levels, the UK GDP forecast reasonable and the IMF forecasts for the world economy looking pretty good too.
The poor start to 2016 has caught most experts by surprise, so why all the nervousness and uncertainty in the markets? Is this an overdue correction or is it the start of a disconcerting new future?
A major part of the problem is concern over the Chinese economy; not just the figures, which look healthy enough, but how believable they are. The Chinese economy is going through a phase of transformation and so to some extent, volatility is to be expected.
Possibly a bigger concern is the oil price, with Brent Crude hitting 13 year lows, with the price down to less than $28 per barrel and seemingly going lower – some predict down to $10 per barrel. This is new territory for most, with no clear picture of where it will end, so again uncertainty in the markets is pretty inevitable.
Of course, later in the year we could well have the EU referendum, which is sure to create its own degree of market volatility.
So as an investor, what is the best thing to do in the current situation? Do you hold on and enjoy the ride? Do you adjust your asset allocation? Do you look for market opportunities? Or do you sell?
Seasoned investors will know that, historically, markets do recover from bear markets, hence the long-term success of equities. Most investors with long-term financial strategies will also have diversified portfolios which will protect them from the worst excesses of the bear market.
However, if you have concerns over the current market situation, or feel that you wish to review your portfolio in the light of the recent developments, contact your Kellands financial adviser.