Global equity markets have had a nervous August, with the VIX fear index spiking above 25 on concerns about US consumer spending data and renewed uncertainty over Federal Reserve policy.
The pattern is familiar. Summer markets, thinned by holidays, amplify every piece of data into a drama.
The fundamentals, however, remain more resilient than the headlines suggest. US corporate earnings have beaten expectations in seven of the past eight quarters.
UK wage growth is running ahead of inflation, meaning real household incomes are recovering some of the ground they’ve lost in the past 10 years or so. The eurozone, while still sluggish, has avoided the hard landing that was predicted twelve months ago.
For long-term investors, periods of elevated volatility are not threats. They are the mechanism by which good returns are generated. The great sin of retail investing is not holding through downturns; it is panic-selling at the bottom and buying back at the top.
Keep calm, diversify properly, and remember that every previous spike in the VIX has eventually resolved into higher prices for those who held their nerve. This time is unlikely to be different.
Macro Aggressions 