August was a terrible month as Europe and US stocks experienced their worst monthly performance in at least four years. Unfortunately, September started off on another sour note with most stock markets down around 3%.
What does this mean?
Investors are nervous -- again. The trigger today appeared to be yet another indicator that economic growth in China is slowing: a survey of Chinese manufacturers suggested their activity is decreasing. In further bad news, South Korean exports – which are sometimes viewed as a ‘leading indicator’ for the world economy – were down 15% versus one year ago. Finally, there were suggestions over the weekend that the US Federal Reserve might still raise interest rates in September (which would be bad for stocks in the short-term).
Why should I care?
One of the big questions on investors’ minds is the extent to which the weakening in the Chinese economy will affect the rest of the world -- in particular, the US. While most signs indicate a growing US economy, do keep an eye out for signs of weakening US growth, as that would likely cause further weakness for US stocks.
Investors who own balanced, diversified portfolios can use these market sell-offs to sell some of their safer investments (like US government bonds) that have gone up in value and buy stocks that have potentially been oversold - this is a process called ‘rebalancing'.
Originally posted as part of the Finimize daily email.
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