Is a bear market on the horizon? | Mercer New Zealand

Is a bear market on the horizon?

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Is a bear market on the horizon?

MERCER NEW ZEALAND

Recently, the VIX volatility index, commonly known as the ‘fear gauge’ of Wall Street, spiked to nearly 25, although it remained well below 37, which was the level hit in February.

 

Recently, global stock markets went through their most pronounced downturn in more than six months, before a moderate rebound ensued towards the end of the monthy. In a flashback to the market turbulence of February 2018, the VIX volatility index, commonly known as the ‘fear gauge’ of Wall Street, spiked to nearly 25, although it remained well below 37, which was the level hit in February. Many analysts are pointing the blame at rising bond yields as the reason behind the latest sell off. However, rising yields on their own probably were not the sole point of blame for this sell-off.

At this point, we do not believe there are any urgent actions for investors to take. In our forthcoming Global Dynamic Asset Allocation report for the fourth quarter of 2018, we do suggest:

  • Modestly reducing exposure to risk assets by underweighting corporate credit securities, where spreads, we feel, leave little upside potential. 
  • Maintaining a neutral allocation to equities; we do not see this as the start of a bear market since macro conditions remain solid. 
  • We also do not view this as a buying opportunity for developed market equities either, as valuations, particularly in the US, remain elevated and could come under pressure from higher rates and risks to the outlook remain.


We expect that this evolution will create higher volatility over the next few years, and investors should expect sharp drops from time to time. We will also be looking for opportunities to take advantage of larger dislocations, if movements become more substantial.

For more information, download our report here

This article does not contain investment advice relating to your particular circumstances. No investment decision should be made based on this information without first obtaining appropriate professional advice and considering your circumstances.

 

 

 


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