How to thrive though market mayhem

Sarah Coles (0:09)

Hello, and welcome to the AJ Bell Money & Markets podcast. I'm Sarah Coles, Head of Personal Finance at AJ Bell.

Charlene Young (0:14)

And I'm Charlene Young, Head of Technical.

Sarah Coles (0:17)

So coming up this week, we'll be talking about the news that's been gripping markets with a market sell-off, the drama surrounding Nvidia and the problems engulfing Poundland. So we're going to explore what's been going on and what investors can do.

Charlene Young (0:28)

Yeah, the markets have really dominated the news, but we'll also be exploring some of the other stories affecting people's pockets.

Hannah Williford is speaking to Michael Owens at Castlefield for Will Aid this November on how wills have become more vital in the wake of IHT changes. Plus some work you've been doing, Sarah, on managing pay gaps in relationships. The question of how much cash you should have at home and news of an advent calendar that has backfired.

Sarah Coles (0:56)

Loads to come, but we definitely should start with the markets and the sell-off. We saw the market start to fall really sharply last week because of concerns over AI spending alongside higher bond yields and political uncertainty. There was loads of panic in the market. Now, this was maybe one of the most broadly predicted market developments of recent years, because I don't know if you remember, but I remember last year, people were already worried about the growing AI bubble and things have just gone up and up since.

Of course, it's not the kind of the sell-off that's happened last week. It isn't the first of the weakness. It has actually seen a gradual decline in quite a few growth stocks, particularly on the NASDAQ since really early October.

Charlene Young (1:33)

Yeah, what was interesting, the market started this week more positively though. So taking the view that Donald Trump perhaps needs a change of direction to come back from his slight humiliation in the midterms elections. There's the hope it might mean finding a way to end the Iran war really, and in doing so, he would in theory help bring down energy costs, which would be a big relief to consumers and businesses alike. But I think for now, we can be certain that the volatility isn't quite over yet.

Russ Mould, our investment director, has in-depth experience of these kind of market movements and what they mean. So we sent off Dan Coatsworth to explore just what's been going on.

Dan Coatsworth (2:17)

We're recording this on Monday, the 9th November.

Just at the tail end of last week, we saw some massive movements. Now, we don't know, by the time you listen to this podcast, we could have had a repeat or we could have had a huge recovery rallies. We don't quite know. So just in that context, Russ, should we just start from the beginning? Last Thursday, Friday, huge, huge sell-off on stock markets and everyone's getting lots of worried. What actually triggered this?

Russ Mould (2:43)

I think ostensibly it was probably the democratic sweep of the House of Representatives and the Senate and then some comments thereafter about how they would look at local data center projects, they might look at regulation. I think it's one of those things that the market had thought about, but maybe didn't quite think it would happen to the same degree.

I guess as ever with these things, it's very hard to piece together who is long going into an event and expecting share prices to go up, who is short going into an event and expecting share prices to go down, and who's borrowed the money to fund those positions. Once those positions start going wrong, then your risk managers can get involved and ask you to close those positions which mean you either have to buy or sell against your wishes and do the opposite of what you want.

There is talk out there of a hedge fund that's a specialist in credit, corporate debt being liquidated. There are rumors that one or two other hedge funds with big equity long positions in AI, again, they're coming under pressure to sell. Those things may only come out in full of some time. So short-term movements are often the function of positioning and leverage, but some of the things that have kept US equity markets moving positively for some time, assumptions that oil prices would come down, assumptions you have a pro-business light regulation president, assumptions that AI would continue to drive corporate profits growth and GDP growth, and assumptions that the Federal Reserve wouldn't raise interest rates very much. All of those have just come under a little bit of a drip, drip, drip over the past three to six months. I think that you got a culmination of an event who was just like, okay, let's de-risk, let's take a view. And now maybe people are taking a more considerate view and starting to pick through some of the debris.