There are many factors that can influence market movements, from industrial and economic developments to wars, civil unrest, the weather – and, more recently, pandemics such as the Coronavirus.
For example, economic growth can be affected by global trade and production. Political events may impact business and consumer confidence which, in turn, can reduce spending and company profits. Meanwhile, poor fiscal decisions in some countries can have a knock-on effect in other countries where they have debts. And then there are natural disasters, which can cause damage to any economy at any time.
When markets experience volatility, investors may adopt a less-risky approach to investing by selling out of riskier share markets and buying in to more conservative assets such as bonds.
Markets operate on a supply and demand model, so if there are more investors who want to sell shares than those who want to buy, it drives down their value. Because of this, demand moves in cycles, meaning markets are constantly going up and down by varying degrees. This is one of the fundamental principles of investing – but one that makes share markets inherently unpredictable.
In the decade since the Global Financial Crisis, there have been a number of downturns in share markets and in-between periods with strong returns. So keep in mind that even when the immediate outlook doesn’t look promising, it’s likely that markets will pick up again at some point in the future.