Why is there so much noise?

Markets have been very volatile this year and we know the reasons. But why does it seem that the ups and downs are more turbulent than usual. High Inflation, Higher Interest Rates, War, Recession, Bad Political Policies…, while these are all serious events, none of them are new and still it seems markets have become more sensitive to them.  

One thing all financial traumas have in common is the human factor, and with the creation of Electronic Trading Systems, we have established a global pool of investors that can trade almost every asset 24/7. That pool has been growing dramatically over the last 2 decades and is accompanied by tremendous growth of Fund Companies that offer mutual funds to individual investors. Blackrock Inc as an example, manages as much as 6 trillion dollars from Investors around the world. The side effect that comes with that size, is that the decisions they make, can have a significant impact on global financial markets. And then there is automation. Computing power and knowledge have increased so much that we now have something called Trading Algorithms. These programs are smart, extremely fast and able to execute buy and sell orders in microseconds. High Frequency automated trading is now responsible for more than half of the activity in the US stock market. It’s basically pre-programmed trading at incredible speed and without emotions.

All these factors, combined with financial headlines create overreactions in the markets. When there is trouble in the markets, Doom Sayers, aggressive Short Sellers and incompetent, desperate Media are not far.

Bear Markets are usually short lived and last on average about 10 months. They are much shorter than Bull Markets but there is a chance that this one may last a little longer and that things may get a little worse before they get better. Simply staying invested does not necessary guarantee a recovery. Having the right diversification, allocation and risk management is crucial for overall performance, especially in times like this. If you are a client, be assured that you are invested in a portfolio that will be managed appropriately through these downturns.

Falk Hampel