“Past performance is not necessarily a guide to future performance”. If you have ever read the fine print on the performance section of a unit trust fact sheet, this statement will ring a bell. If we look at investment markets currently, we see a healthy recovery from the June lows and we all hope things will only improve from here. Although history is not necessarily going to repeat itself, we tend to cling to it because it is familiar and in this world of uncertainty, we need something familiar. History does have a big impact on the way we predict the future and if we look at the graph below, you will probably think that markets are definitely going to go lower because that is what happened in 2008 after a trend that looks very much like the one we are currently following.
What we have to remember, is that the performance of a market is linked to the current circumstances and more importantly, to what investors are expecting will happen in the next six to eighteen months. At present, we can see some signs of the US economy slowing down (see graph below), and that is what have analysts spooked.
Higher interest rates act like a handbrake on an economy and so far it is working rather well all over the world. Given the current rate of economic slowdown, analysts have lowered their expectations for the year-end level of the broader US market (S&P500) since the start of the year (see graph), but the good news is that the average is still higher than the current level of the S&P500 which stands at 4 200
