- The end of QE in the U.S is in sight. So it’s natural to expect some volatility as this unfolds gradually.
- The price of oil dropped unexpectedly in a big way. When unexpected events occur, the markets react. The price of oil is expected to come back to the more normal level of $80 a barrel within a few quarters.
- Global Growth is slowing. We have seen tremendous growth in the past 3 years following the financial crisis. The recovering economies are still expected to grow but at a more moderate level. Any type of slow down affects the markets.
Always remember that equity investment returns are closely tied to corporate earnings growth and the price you pay for those earnings. Historically, over the long term corporate earnings have been fairly stable and have grown along with productivity gains and inflation. Stock valuations though are more volatile than earnings since they are influenced by investor sentiment, which swings between optimism and pessimism. Learn to live with market volatility by focusing on your investment earnings yield instead of your investment market value.