Will market volatility affect investor confidence?

by David Jones, a Chief Market Strategist at Capital.com

As the trading week gets underway, investors nerves are likely still frayed after the volatility that continues to be seen in stock markets. Last week saw further plunges with the broader US index, the S&P500, touching a six month low and going negative for the year to date. Recent trading days have really been a roller-coaster – sharp drops followed by near-vertical recoveries – only for stock markets to turn lower once more. US markets have fallen by almost 9% so far in October – and this is after setting fresh all-time highs towards the end of September. Last week’s results from both Amazon.com and Google’s parent Alphabet, spooked investors and saw sell-offs for both of the tech giants. The companies only slightly missed revenue expectations and arguably if this had happened six months ago, we would not have seen such a negative knee-jerk reaction. But the feeling continues to build amongst investors around the word that maybe stocks are overstretched on current valuations – and any slightly bad news has them reaching for the sell button.

In times of trouble, investors look for safe havens. This explains the resurgence in positive sentiment over the past week for the US dollar, with the dollar index hitting a 17 month high. That traditional store of wealth gold has also had its moment in the sun, with the price briefly trading above $1240 towards the end of last week, its highest since July.

Perhaps the panic has gone too far in markets for now. Investors will certainly be hoping for a quieter few days. With the latest US non-farm payroll numbers due out on Friday, the second half of the week could well see markets just treading water ahead of the latest update on the state of the US economy – around 190,000 jobs are expected to have been added in the past month.