Macroscope | Market volatility a sign that investors are looking for excuses to sell off

I have spoken about the “Harris Law of Quarterly Investing” before. This is an observation that it is possible to predict a major turning point will occur at the end of a quarter. In reality, the vagaries of the markets are such that the trend of movement may be sharply upwards, downwards or indeed change very little from its course. 

This may seem to be a deeply unhelpful indicator at first sight but, if you look long enough, it is possible to see that market behavioural patterns do come through roughly quarterly. January continued 2017’s steady, unspectacular, but continual rise. The turn came exactly a month late when the quarter spun into what a bad football pundit would call “a game of three halves”.

Having risen strongly since mid-2016, the markets have been casting about for reasons to sell off. First up was the “inflation frenzy” of February, followed by “Trump’s trade trash talk” in March, and to ensure that the quarter ended on a wobbly note, the “Facebook fears”.

It seems difficult to remember that the markets were worried about rampant inflation just two months ago. Since then, inflation has remained mysteriously muted, despite a Federal Reserve Bank meeting that talked about a Goldilocks scenario of higher economic growth than expected, lower unemployment than expected and low (albeit slowly) rising inflation. The underlying economy is definitely doing well – but how much of that is already in prices?