Keep Calm and Carry On.
The slogan comes from a United Kingdom Ministry of Information propaganda poster designed to boost morale if the United Kingdom was invaded during World War II. Despite its current popularity, the poster was never distributed.
The slogan offers some sound advice for anyone who was unnerved by last week’s stock market volatility. Investor optimism caught fire when Federal Open Market Committee meeting minutes indicated economic growth might not proceed quickly:
“Most viewed the risks to the outlook for economic activity and the labour market as broadly balanced. However, a number of participants noted that economic growth over the medium term might be slower than they expected if foreign economic growth came in weaker than anticipated, structural productivity continued to increase only slowly, or the recovery in residential construction continued to lag.”
Slower economic growth could translate into delayed monetary policy tightening (lower interest rates for a longer period of time), and that notion sparked the biggest rally of the year on Wednesday with U.S. stock markets making significant gains.
What goes up must come down. For every action, there is an equal and opposite reaction. Okay, the laws of physics generally don’t apply to stock markets. That said, a lot of folks saw Wednesday’s market highs as an opportunity to take gains off the table, according to Barron’s. Consequently, we saw steep stock market declines on Thursday with major U.S. markets losing 2 percent or more.
The FTSE 100 is trading at its lowest level for a year, to date. Collapsing oil prices and the threat of Ebola is panicking investors worldwide.
Yields on longer-term Treasuries also fell last week. Reuters reported weak economic data in Germany, which raised concerns about growth in the Eurozone, and revised forecasts from the International Monetary Fund indicating global growth may be lower than expected, caused investors to seek the safety of U.S. Treasuries.