If you are wondering what is up with market volatility these days, you are in good company.
People from all countries around the world are witnessing the development of globalization as it brings light to common challenges encountered in the pursuit of common prosperity. In order to simplify this, we need to understand how the market works.
The market calculates the Present Value of stock prices by discounting Future Values based on risk. Remember Economics 101? “A dollar today is worth more than a dollar tomorrow.” If not, that is ok… The challenge of “Value” is determining exchanging ratios and how prices reflect or fail to reflect certain factors. Not to mention, the optimistic sentiment of investors plays a major factor.
Here is a brief synopsis of where we are.
We have seen a bullish up-trend in the market since 2009. Some think the U.S. stock market is around the mid-point of a long-term secular bull market and understand that different sectors within the market do better at various times. Typically, a recessionary environment resets prices on equity values making them less expensive to buy. Political nervousness also impacts the market. It causes investors to wait before buying. When investors wait, they don’t buy stock (i.e. equity investments). When they don’t buy stock, the prices go down.
- World economic growth slowed in the first three quarters of 2018.
- The volatility of global capital flow has intensified.
- The China-U.S. trade friction brings uncertainty to global governance.
- U.S. companies are raising prices due to higher costs including labor, material, fuel and capital.
So where next?
An article in the November 2018 issue of the The Economist: Where next? provided more insight on this specific topic.
“As Chinese Prisident Xi Jinping said, humankind has reached an age of great progress, great transformation and profound changes from historical perspective.”
“The international community is waiting for the leaders of all countries to abandon prejudice and egoism in order to undertake responsibilities and make contributions to coping with challenges.”
“Guided by the principles of peace, sovereignty, inclusiveness and shared governance, the world should turn the deep seas, the polar regions, outer space and the Internet into new frontiers for cooperation rather than a wrestling ground.”
(The Economist. Where next? At a Crossroads by Xu Hongcai. Nov. 10, 2018. Page 20.)
A summary of objectives:
Global growth requires new drivers.
Development needs to be more inclusive and balanced.
The gap between the rich and the poor needs to be narrowed.
So what can you do to contribute time and energy as the global environment continues to develop? Pay attention to market fundamentals and technicals. Increase your own understanding of how your daily individual contributions help to make our world a better place to live.
- Foster partnerships based on dialogue, non-confrontation and non-alliance.
- Respect each other’s core interests and main concerns.
- Keep differences under control.
- Build a new model of relations featuring non-conflict, non-confrontation, mutual respect and win-win cooperation.
Stay the course during this global economic and image-bearing shift.