I was not scheduled to write a new blog post today, but given yesterday’s monumental market events, I thought it would be a good idea to pen a brief note.
So often, I talk about the risk of missing the “best days” in the markets.
What I am referring to here is that missing out on just the best 5 or 10 days in the market within a multi-decade time period can have a huge impact on your overall investment returns (or losses as the case may be).
I have shared this document before, however if you would like an explanation of just how powerful this concept is, please click the button below to see a wonderful page by Fidelity:
| When Doing Nothing Is Best – Read Here |
This phenomenon tends to unfold when an individual investor (or even an institutional investor for that matter) seems to think that, despite all evidence to the contrary, they can ‘time’ the market, they ‘know what is coming’, they ‘know better’ and therefore they cash in investments ‘to avoid further losses’.
My sense is that when we look back a decade from now, yesterday will most likely feature as one of those top 5 or 10 days, for the US markets at least.
Yesterday didn’t feel like a hugely significant day going into it. Yes, sure we knew that we were going to get some new data on US inflation, but the markets had predicted more bad news.
What a surprise we had!
The inflation numbers were significantly lower than forecast. This in turn has now tempered expectations for further US base rate rises, which in turn sent US stock markets skyrocketing yesterday.
The S&P 500 closed the day up just over 5.5%
The Dow Jones was up nearly 4%
The tech-heavy Nasdaq was up an incredible 7.35%
Had you said yesterday morning that we were going to see those kinds of returns, some may have thought you were away with the fairies – but here we are nonetheless.
I just thought I would bring you this good news when there seems to be so little around at the moment.
It just goes to show the difference a day makes!
