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The Essential Guide To The Recent Market Sell-Off, And How To Position Yourself Going Forward

Photo credit: Rafael Matsunaga. Licence: http://creativecommons.org/licenses/by/2.0/

Last week was tough for stock markets around the world. In just two trading sessions on Wednesday and Thursday, the S&P 500 – a major market index in the US – fell by more than 5%. Closer to home, Hong Kong’s Hang Seng Index fell by 3.5% in Thursday alone, while our local market barometer, the Straits Times Index  (SGX: ^STI), fell by 2.7% on the same day.

There was a rebound last Friday, but to help you keep up with the latest developments, here’s a quick summary of what might have caused the sell-off, and what you, as an investor, should do now and in the future.

What may be causing the stock market sell-off

There are a number of reasons that may have contributed towards the recent decline in stock prices. Four of those reasons were shared by my colleague Jeremy Chia in a recent article of his. Jeremy mentioned the following: (1) On-going geopolitical uncertainty related to the China-US trade war; (2) the International Monetary Fund’s recent downgrade of its global growth forecast from 3.9% to 3.7% for 2018; (3) the hike in interest rates by the Federal Reserve, the US’s central bank; and (4) Corporate-tax cuts no longer being a factor in corporate earnings growth in the US in 2019.

What to do now 

Clearly, a market sell-off is not a pleasant experience. But, it should be, if you’re a net-buyer of stocks, as a decline in stock prices allows you to buy more shares on the cheap.

In any case, there are actions we can take to benefit from falling stock prices. In an earlier article of mine, I shared three ways for us to remain rational in the face of a market decline: (1) Know that stocks are bound to fall from time to time; (2) have an action plan; and (3) avoid looking at share prices unnecessarily.

My colleague Chin Hui Leong also recently shared three quick but useful tips to take advantage of a stock market correction: (1) Buy a share only because you want to own more of the business, not because its price has fallen; (2) you’re not going to get the lowest share price, so act fast; and (3) investing is a marathon, not a sprint, so pace yourself.

What next

My colleague David Kuo had a wide-ranging discussion with the chief investment officer of DBS Bank, Hou Wey Fook, during the recent market sell-off on what investors should do going forward.  Topics covered during David’s chat with Wey Fook include:

(1) How high can interest rates go and could inflation be as big a problem as some have suggested?
(2) How would the the Sino-US trade dispute affect inflation?
(3) There have been numerous suggestions that the US bull market is growing long in the tooth; could the sell-off in shares be a sign that the US market has finally reached a top?
(4) Where are the best places to invest in 2019? What are the biggest concerns for 2019?

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned.