I’m sure many of you will be familiar with the term the Wall of Worry. This is the tendency of financial markets to increase even as economic, political, or social conditions suggest that they should be falling.
It’s a totally logical feeling to be scared of stock markets when they are at an all-time high – but the reality is different. Take the US stock market (which accounts for 60% of the global economy) as an example – investing at market highs for the past 100 years would actually have been a profitable strategy.
Figures from Schroders show that from 1926 to 2023 the 12-month returns following an all-time high being hit have been better than at other times: 10.3% ahead of inflation compared with 8.6% when the market wasn’t at a high. Returns on a three-year horizon have also been slightly better on average (7.6% vs. 7.5%)*.
There are two points of note. Firstly, markets reach all-time highs a lot more than people think. Of the 1,176 months since January 1926 to December 2023, the market was at an all-time high in 354 of them, 30% of the time*.
Secondly, and perhaps more importantly, both US and global markets were at all-time highs in December 2023**. But if you’d have invested in them at the end of last year, you would have made returns of 29% and 23% respectively***. It all goes back to the old adage – time in the markets not timing the markets.
Please remember that the value of investments will fluctuate and returns may be less than the amount originally invested. Tax treatment depends on your individual circumstances and tax rules can change. Chelsea does not offer advice and so if you are unsure of anything please contact an expert adviser.
An incongruous 2024 has been shrugged off by markets
This year has been incongruous to say the least. It has been dominated by monetary policy and growing geopolitical tensions. The former has left markets in a malaise as forward guidance (an unconventional investment tool designed to give some insight on what central banks are thinking) was thoroughly exposed, with central banks’ rate cutting plans often swayed by the latest data point.
Mixed signals on monetary policy make investing challenging and although we are starting to see rate cuts, they are unlikely to be as aggressive as many thought at the start of 2024. Geopolitical tensions have steadily worsened throughout the year with conflict in the Middle East, the ongoing war between Russia and Ukraine, and the growing concerns about US trade tariffs.
Volatility has also been present throughout 2024. A good example of that was in early August when we saw a sharp correction, as disappointing jobs data in the US – in tandem with the unwinding of the carry trade in Japan – acted as a catalyst for a market sell-off amid fears of recession.
